RBI wants ideas on savings rate freeing

Reserve Bank of India governor D Subbarao today said the central bank was unsure about the impact if savings rates were deregulated and if it would make interest rates unstable.

“We will bring out a discussion paper soon on the (subject) and want banks to give suggestions on it,” he said.

The central bank’s mid-term policy review had said the discussion paper would delineate the pros and cons of deregulating the savings deposit rates, which had remained unchanged at 3.5 per cent per annum since March 1, 2003.

“There is a chance that once it comes, banks will abandon low-income household services. If interest rates go down, it will affect small savers and if it goes up, it may impact the costs of banks. We are not clear about its outcome,” Subbarao said.

Adding: “If we talk about the positives, it may give additional flexibility for banks; they can come up with innovative products. Moreover, if interest rates go up, it will attract more savings and the apex bank will have a better idea of monetary policy transmission.”

Inflation
The central bank’s deputy governor, Subir Gokarn, today said inflation was expected to reduce in the coming months. And, that liquidity was a concern.

“Though a crisis still prevails internationally, in the domestic front things are hopeful, as the GDP and IIP numbers were good in the second quarter. The most important thing is that overall inflation is showing signs of decline. Though some food items are still under pressure, even food inflation is expected to be down,” he said.