Cut has to be deeper, says govt

When Humpty Dumpty had a great fall, all the king’s horses and all the king’s men tried to put Humtpy Dumpty together again.

The same seems to be happening with the Indian economy. The prime minister’s men are demanding an interest rate cut from the RBI, to get the economy which is slowing down, up and running again.

Commerce and Industry minister Kamal Nath on Saturday said that the RBI has room to cut interest rates further as inflation has eased. “I think with inflation close to 3 per cent, RBI should look at incisive methods to stimulate the economy,” said Nath.

This follows what Suresh Tendulkar, the chairman of the prime minister’s Economic Advisory Council, had said on Friday “A lower rate regime should basically come into play now. The final call lies with the RBI.”

The Gross Domestic Project (GDP) in the three months from October to December grew by just 5.3 per cent. The GDP had grown at 8.9 per cent a year ago and 7.6 per cent in the three months ending June 30, 2008.

Meanwhile in New Delhi, RBI governor D Subbarao dodged questions on an interest rate cut before he stepped into a meeting with Montek Singh Ahluwalia, the deputy chairman of the Planning Commission. “I am not prepared to answer that question,” he said.

Some experts are of the view that the Reserve Bank might cut interest rates early next week. “I expect RBI to cut interest rates by early next week. I see a 0.5 per cent cut in repo rate,” said Abheek Barua, chief economist at HDFC Bank. Repo rate is the rate of interest at which the RBI lends to banks.

“Liquidity is fairly good so there could be a possibility. We will have to study the impact next week,” said MD Mallya, chairman and managing director of Bank of Baroda.

Some banks have started to cut interest rates even before the RBI cut rates.  Mumbai based Union Bank of India, has cut interest rates on new home loans by 25 basis points to 1 per cent. One basis points equals 0.01 per cent.

Union Bank will give new home loans above Rs30 lakhs in two slabs of Rs30 to 50 lakhs and above Rs50 lakhs. Loans between Rs30-50 lakh will be given at an interest rate of 9.75 per cent to 10.75 per cent. Loans above Rs50 lakhs will be given at a range of 10.25 to 11.50 per cent. Interest rates on new car loans have also been cut by up to 1.5 per cent with effect from March 1. Car loans will be given at a broad range of 11 to 12.25 per cent.

Delhi based Punjab National Bank also separately announced a cut rates on auto loans by 50 basis points to 10.5 per cent. The bank also interest rates on fixed deposits of up to one year maturity by 50 basis points to 7 per cent.  

Bankers also said that private banks, including ICICI Bank, had told RBI in a meeting on Friday, that they will be able to cut interest rates as deposit growth has stabilised. “Private banks told RBI that now they are not facing the problem of losing deposits to nationalised banks,” said a banker. However, Chanda Kochhar, joint managing director of ICICI Bank could not be reached for a comment.

(with inputs from Newswire 18)