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Liquidity to stay, rates may fall further: State Bank of India
“The recent government’s move on demonetisation is a welcome one. A huge amount of money is coming into the savings and current accounts. This huge amount of deposits has turned the system liquidity into surplus and we believe that this extra liquidity will not go away from the system in a hurry, which may push down the interest rate further,” a top SBI official said.
New Delhi : Additional liquidity that is coming into the banking system following demonetisation will not go away in a “hurry” and may pull down interest rates further, said the country’s largest lender State Bank of India (SBI) .
“The recent government’s move on demonetisation is a welcome one. A huge amount of money is coming into the savings and current accounts. This huge amount of deposits has turned the system liquidity into surplus and we believe that this extra liquidity will not go away from the system in a hurry, which may push down the interest rate further,” a top SBI official said.
On November 8, the government surprised the nation by declaring Rs 500 and Rs 1,000 currencies invalid to check black money and fake notes, giving a 50-day window to exchange these old notes within a cap or penalty provision for unaccounted money. Thus, SBI’s cash deposits have swollen by over Rs 1.27 lakh crore as on November 17 because people are compelled to put their money in bank accounts due to invalidity of these high-denomination currencies and the note exchange policy.
Also, SBI expects inflation in November to slip below four per cent. In October, retail inflation was at 4.20 per cent while wholesale inflation eased to 3.39 per cent. “Our expectation is that the inflation in November will be below four per cent. Also, the recent demonetisation will support easing the inflation by affecting the consumer demand adversely.
Hence, we are still expecting another round of repo rate cut by 25-50 basis points (0.25-0.50 per cent) in 2016-17,” the official said.
In its last monetary policy in October, the RBI had cut the key repo rate – at which it lends to banks – by 0.25 per cent to 6.25 per cent. The RBI has cut the repo by 1.75 per cent since January 2015. SBI trimmed its fixed deposit rates on select maturities by up to 0.15 per cent last week on account of cash flush due to invalidity of high-value notes.
“Cash being deposited at SBI branches belong to customers, as such customers are at liberty to use it the way they want. Interest will be paid on the balance outstanding as per the applicable rates (SB or Term Deposit A/c),” the official said.
