RBI to ensure stable interest rate regime

Even as former Reserve Bank of India (RBI) Governor C Ranngarajan said the huge borrowing plan of the government might push up interest rates, the RBI on Friday stressed on ensuring a stable interest rate regime to support economic growth.

Besides, the central bank would work to ensure adequate liquidity, said Deputy Governor KC Chakrabarty.

“RBI’s stance will be to ensure that rates remain stable and benign. It will depend on market forces and the global market. There are signs of revival in the debt market,” Chakrabarty said on the sidelines of summit here.

“Enabling government borrowing when private borrowing is not high should not impact rates. Since private borrowing may not be large in the first half, it may facilitate large public borrowing,” said Chakrabarty.

About the current trend of subdued credit offtake, he said RBI would revisit its credit growth estimates in the quarterly monetary policy review of on July 28.

On a year-on-year basis, bank credit grew 15.1 per cent in the first quarter as against 26 per cent a year ago. The central bank has indicated 20 per cent growth in credit for 2009-10, down from its estimate of 24 per cent for 2008-09. However, Chakrabarty said credit demand would pick up in the coming quarters.

He said it was better to borrow in the remaining half of the financial year when the demand for credit was likely to be low.

Since public banks have reduced rates by 100 basis points in this financial year (2009-10), private banks may also have to lower rates to expand their credit base. “Private sector banks will have to reduce rates to lend in a competitive environment,” he said.

But if the cost of funds went up, banks might increase (lending) rates, he said. Moreover, deposit rates might rise if the demand for credit was three times the deposits mobilised and they were unable to mop up funds, he said.

On banks restructuring their loan books, he said RBI was examining the matter and might extend the deadline depending on individual cases. He insisted on participation of large IT players in making technology available.

“We want to make banking for the poor a viable and legitimate business. We must establish it as a viable business,” he said.

Forex reserves fall to $263.92 bn

India’s foreign exchange reserves declined by $560 million to $263.92 billion during the week ended July 10, mainly due to revaluation of currencies. According to the RBI data, foreign currency assets dropped by $559 million to $252.87 billion during the week ended July 3.