Rates to be data-dependent: V R Iyer

Says inflation is expected at 5.8 per cent by the end of 2015

The repo rate, CRR as well as the SLR have been kept unchanged. The RBI statement has mentioned that policy transmission has not taken place despite the central bank cutting repo rate in the last quarter of the FY15. Inflation is expected at 5.8 per cent by the year-end.

To encourage banks to reduce base rates, RBI will issue guidelines on the use of marginal cost of deposit in the base rate calculations. The impact of reduction in the cost of deposit experienced during the last quarter will encourage banks to pass on the benefit to customers.

Retail borrowers may see lower EMIs. Banks have been permitted to invest in infra bonds issued by other banks but with a qualification. This will generate trading interest and issuance will become easier. The Net Stable Funding Ratio will be implemented from January 1, 2018, and draft guidelines are expected by May this year.

Banks will have to realign their balance sheet and dependence on borrowed funds will need to be reduced gradually. Retail sale of G-sec will be encouraged and infrastructure in this regard will be improved. This will deepen the G-sec bond market. Further policy rate movements will be data-dependent.

V R Iyer
Chairman and managing director
Bank of India