15 May, 2021

Matters Of Interest

The RBI's signalling a lower-interest regime is as well-timed as it is welcome

Matters Of Interest

For the first time after 1992, bank stocks have joined the stock-market rally, gaining handsomely on expectations of a profit boost through the bank rate cut. In a synchronised sequel to Budget 1999-2000, the RBI cut the bank rate by a percentage point to 8 per cent and repo rate by a sharp two points a day after the budget. To top what now seems a coherent package to boost capital markets and buoy investment sentiment, the central bank also dropped banks’ cash reserve ratios (CRR) from 11 to 10.5 per cent.

The stage is now set for an across-the-board cut in interest rates to put more cash in the hands of enterprising businessmen. The cut in CRR alone will release Rs 3,500 crore into the system. Says State Bank of India (SBI) chairman G.G. Vaidya: "Already, there have been signs of credit picking up. I am sure the credit offtake will grow manifold in the last month of the current fiscal and the first quarter of 1999-2000."

Justifying the cuts, RBI governor Bimal Jalan said: "Some months ago, I had already indicated preference,...

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