Bankers said today that the Reserve Bank's decision to hike policy rate by 25 basis points will anchor inflationary expectations and policy rate transmission would happen in the coming days.
Anticipating policy rate hike, many big lenders including SBI, ICICI Bank and HDFC Bank have already increased their benchmark lending rate by up to 0.1 per cent.
The policy transmission is expected to follow in terms of marginal hike in banks' lending rates, which some of the banks have already announced, Bank of Maharashtra MD and CEO R P Marathe said in a statement.
In the second bi-monthly monetary policy announcement for the current fiscal, RBI for the first time in four-and-half-years raised the key interest rate today by 25 basis points to 6.25 per cent.
The central bank tweaked the retail inflation range to 4.8-4.9 per cent in the first half of 2018-19, and 4.7 per cent in the second half.
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The 6-member Monetary Policy Committee (MPC) headed by RBI Governor Urjit Patel also decided to retain projection of GDP growth for 2018-19 at 7.4 per cent, with risks evenly balanced around this number.
"The hike in the policy rate shows RBI's concern over spikes in retail inflation, especially food inflation, in recent months," Bank of India's MD and CEO Dinabandhu Mohapatra said.
"The revision in CPI inflation projection shows RBI will remain more vigilant on retail price levels in the coming months," he added.
According to SBI Chairman Rajnish Kumar the increase in FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) will provide more liquidity to banks and moderate short end interest rates.
"Other measures like increase in threshold limits for affordable housing, encouraging continued formalization of MSME sector are in the right direction. The change in SDL valuation norms are long term positives and the spread of MTM losses over 4 quarters will provide the banks with much needed relief," he said.
ICICI Bank MD Chanda Kochhar such timely action will ensure that inflation expectations remain anchored thereby aiding financial stability.
Yes Bank MD and CEO Rana Kapoor said the unanimously delivered 25 basis points rate hike from MPC reflects adherence to the medium term inflation target of 4 per cent.
While the rate action is primarily in response to global uncertainty, especially from crude oil prices, it also signifies that the central bank is comfortable on the improving growth outlook, Kapoor said.
Future action will be driven by the trajectory of inflation, Bandhan Bank MD and CEO Chandra Shekhar Ghosh said.
Mohapatra said RBI's step on the Liquidity Coverage Ratio (LCR) by allowing another 2 per cent of NDTL under FALLCR to be recognised for computation will be good for banks.
Harmonisation of priority sector lending guidelines for housing loans with the PMAY affordable housing schemes will bring more clarity in this area, he said.
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