Bankers lobby for cut in repo rate

MUMBAI, JAN 16: Senior bankers are lobbying hard with the Reserve Bank of India for a repo rate cut against the backdrop of RBI governor ...

MUMBAI, JAN 16: Senior bankers are lobbying hard with the Reserve Bank of India for a repo rate cut against the backdrop of RBI governor Bimal Jalan’s statement last week that interest rates should head down and the central government slashing the small savings rates.

The repo rate cut will encourage banks to pare their deposit rates, thereby bringing down the cost of funds. Besides, it will also trigger flaring of gilts prices which may help banks book depreciation benefits on account of lower yield-to-maturity (YTM) of the government papers. The issue is likely to come up for discussion at the bank chiefs meeting with Reserve Bank of India deputy governor S P Talwar on Thursday. The RBI has called the meeting to discuss a detailed framework for asset liability management in banks. A separate meeting on Y2K compliance will also be held by the RBI which will also be chaired by Talwar later in the day.

The repo rate is currently pegged at 8 per cent. The last time the Reserve Bank hiked the rate was inAugust last year after speculators attacked the dollar and weakened the rupee to a low of 42.70.

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The move for a repo rate cut develops steam after the inter-bank call rates tightened to cross the psychological barrier of 10 per cent on Wednesday.Bankers have been lobbying for a repo rate cut as it will help them boost the declining spread on their assets. "Even though there is no pick up in credit, we cannot lower the deposit rates unless we get a signal from the central bank…The repo rate cut will send out the signal," said a private sector banker.

The repo rate cut will also inject bullishness in the bond market triggering a rise in prices. With the decline in yields, banks will be in a position to benefit on account of depreciation in gilts. The YTM for the 10-year paper in 1998 was fixed at 12.15 per cent.

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