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Cut in lending rates insufficient to boost credit growth: BofA Securities

The Reserve Bank cut rates in five consecutive reviews in 2019 before pausing in December due to surge in inflation

Press Trust of India  |  Mumbai 

Money

The sharp reduction in is insufficient to prop up which is set to fall in July this year, an American brokerage said on Tuesday.

Deterioration in factory output and real wage growth are the impeding factors limiting the growth in credit, Securities said in a note.

The Reserve Bank cut rates in five consecutive reviews in 2019 before pausing in December due to surge in inflation.

RBI Governor Shaktikanta Das has said that the central bank was proactive in cuts when worrying signs started emerging on growth, which is set to slip to a decadal low of 5 per cent in 2019-20. The view was to push economic growth by making credit cheaper.

The brokerage firm said it has used a model, which takes on board data till November, to come at its estimates that will increase till March 2020 and fall in July 2020.

It blamed falling industrial activity (IIP) and weaker wage growth, which have more than countered the impact of falling interest rates.

"Reduction in (is) insufficient to accelerate SCB loan growth," it said.

It can be noted that had risen to 7.13 per cent for the fortnight ended January 31, as per the official data published by RBI.

The brokerage welcomed the initiatives taken by RBI on rate cuts as well as liquidity injection, and said that rates have fallen up to 0.65 per cent as against the cut of 1.35 per cent by RBI.

First Published: Tue, February 18 2020. 18:14 IST
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