RBI Obliges for Now, but Future Not So Promising

Banks to pass on rate cut to borrowers,but hawkish guv could reverse stance later

Governor Duvvuri Subbarao met markets more than half way by lowering the benchmark interest rate and banks cash reserve ratio,but declined to say if the move heralded the beginning of a lower interest rate cycle.The reduction in two key variables could lead to lower borrowing costs,although bankers caution it may not be too much given the fight among banks for deposits that is raising their cost of funds.The lower rates may ease the pinch for corporates,but again not significantly enough for them to dust off their investment plans or build new factories.Subbaraos rate and reserve decisions were overshadowed by the red flags he raised on the record high current account deficit and stubbornly high food inflation,which could force him to reverse his stance in the coming months.

Economic Times, New Delhi, 30-01-2013