The rate cuts by the Reserve Bank of India has not translated into lower lending rates. The apex bank has gone in for two out-of-policy repo rate cuts this year, both sudden and unexpected, of 25 bps each. While announcing that repo rate has been cut to 7.50 percent, the RBI maintained disinflation was evolving at a faster pace than envisaged which prompted the necessary action.
At a tele conference call with analysts later in the day, RBI chief Raghuram Rajan said he expected to see banks lower lending rates heading into a new fiscal year in April and believes liquidity stance at the moment is fairly accomodative.
Talking about the rationale behind the surprise cut, Rajan said it is imperative that economy grows at a rate consistent with inflation forecast. With CPI inflation coming below 5 percent in last 4 months, there is a firm belief that it will be fairly easy to achieve 6 percent CPI inflation target for FY16. Rajan is hopeful by January 2018, India should have reached mid-point of inflation target of 4 percent.
Talking about rupee, which gained shaply post the rate cut, Rajan cautioned a very strong currency against the dollar was not desirable.
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