RBI leaves repo unchanged: Banks remain on wait-and-watch mode on rates

The central bank said risks to near-term inflation have moderated somewhat, but pressure remains during the second half of the year.

Banks are unlikely to change interest rates after the Reserve Bank of India kept the key repo rate unchanged at 6.50 percent on June 8, bankers said.

“Rates will largely remain unchanged for banks as the RBI did not change the repo rate," said Shekhar Bhandari, president of global transaction banking at Kotak Mahindra Bank.

"With inflation continuing to slide, the MPC's decision to maintain a status quo on repo rates is on expected lines," said Suresh Khatanhar, Deputy Managing Director, IDBI Bank.

Arijit Basu, chairman of the banking and finance committee at the Indian Merchants’ Chamber, said the pause by the RBI was expected.

“The pause by the central bank could be a positive for the banking sector. A jump in rates is unlikely among banks and with this, the RBI would now prioritise its focus on maintaining price and financial stability,” said Basu, a former managing director of State Bank of India.

Analysts said banks may increase deposit rates marginally due to the impact of the repo rate hike of 250 basis points from May 2022.

“The impact from hikes starting in May 2022 is still visible among banks. Therefore, one may see banks marginally increasing their deposit rates as they would want to accommodate the past impact,” said Vijay Singh Gaur, lead analyst for BFSI research at CareEdge.

Banks have had aggressive deposit accretion recently due to the withdrawal of Rs 2,000 notes. About Rs 14,000 crore worth of Rs 2,000 notes had been deposited with State Bank of India and Rs 3,104 crore worth with Bank of India, data with the lenders showed.

About 50 percent of the Rs 2,000 currency notes in circulation at the end March had returned to the banking system, RBI governor Shaktikanta Das said after the Monetary Policy Committee meeting on June 8.

“This constitutes around Rs 1.8 lakh crore in terms of value. As at March-end, the total value of Rs 2,000 notes in circulation was around Rs 3.62 lakh crore,” Das said.

The MPC left the repo rate, the key short-term lending rate, unchanged at 6.5 percent for the second time, in line with expectations, but sounded caution about a likely uptick in inflation. Das said that while risks to near-term inflation have moderated somewhat, pressure remains during the second half of the year which needs to be watched and addressed at the appropriate time.

Das signalled the central bank’s readiness to act in keeping with the incoming data.