Global fin firms expect more from RBI in coming months

With economy slowing down and inflation falling to over six-year low, global financial institutions expect the Reserve Bank of India (RBI) to take more monetary measures to perk up the economy after yesterday's cut in key policy rates.

However, some entities opined that rate cuts by RBI would not help much to revive demand.

"The monetary easing cycle looks set to continue in coming months, as a deterioration in economic conditions is likely," Moody's economy.com said in a research report.

Yesterday, RBI unveiled a fresh monetary stimulus by slashing repo (overnight lending rate) by 50 basis points to 5 per cent and reverse repo (overnight borrowing rate) identically to 3.5 per cent.

However, according to financial firms Morgan Stanley, policy rate cuts will help cushion the downside but will not prevent the growth slowdown.

It does not see the rate cuts reviving credit demand as real borrowing costs are still high relative to underlying real growth trend.

"Banks are reluctant to respond in the form of aggressive lending rate cuts due to rising credit costs (NPLs) on past loans and also because their liability (deposits) side takes a longer time to price in the declining interest rate environment," a Morgan Stanley report said.