Bankers blame rising inflation for status quo

Mumbai: Bankers were surprised at the Reserve Bank hitting the pause button despite a steep fall in growth, and opined that inflation seems to have been fore- grounded by the rate-setting panel's unanimous decision.

Stating that the rate call has come as a surprise, largest private sector lender HDFC Bank's chief economist Abheek Barua said, "clearly, the RBI has responded to hardening inflation and rising inflation expectations."

The RBI wishes to see the lagged impact of its 1.35 percentage points rate cut till October to play out before moving on the rates further, he said, adding transmission can be faster now as banks chase the fewer people who are queuing up for loans given the economic gloom.

Kotak Mahindra Bank's Shanti Ekambaram also said the transmission process is likely to improve further, but added it is "interesting" to see the pause call was unanimous for the six-member panel.

"Inflation and fiscal deficit trajectory will probably be the guiding force for future rate decisions," she said.

Microlender-turned-universal lender Bandhan Bank chairman CS Ghosh said though the pause was against market expectations, it has to be seen in the context of a rise in retail inflation projections by RBI.

Tata Capital's Rajiv Sabharwal is surprised at the RBI's move but added this is aligned with inflation trends.

However, his peer Umesh Revankar of Shriram Transport Finance, said the pause was expected given the high quantum of liquidity in the system and limited transmission of the earlier rate cuts.

"We expect private capex to make an entry due to corporate tax cut and banks to start lending aggressively to reduce liquidity," he said.