By DKODING
The Post-Policy Quote From Mr. Madan Sabnavis, Chief Economist, Bank of Baroda
“The credit policy clearly indicates that the major threat to the growth process is inflation. While growth is expected to proceed on a stable path, inflation has to be addressed which has led to a unanimous decision to raise the repo rate by 50 bps. With inflation expected to be 6.7% (BoB’s forecast is slightly lower at 6.5%) this year, it will take a long time to move to a positive real interest rate regime.
The higher interest rates will get transmitted directly for loans which are linked to external benchmarks such as home loans or SME loans. However, MCLRs will be slower to react in terms of quantum of change. The same will hold for deposit holders who will receive higher rates depending on how banks adjust their rates based on their funding requirements. As there is surplus liquidity currently in the system which can go for lending, the immediate response may be slow.
The RBI’s optimism on growth is significant because the performance of the economy in the first two months is quite impressive. Interest rate hike will help to ensure that growth is not affected as unchecked inflation can affect discretionary consumption, which in turn will affect growth. Higher repo rate also means that the SDF rate has gone up which will help banks earn higher return on surplus funds as it will be now at 4.65%.”
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Source: MPC Announcement — The Post-Policy Expert Quote From Madan Sabnavis
Category: ECONOMY, MONEY & MARKETS, banks, Madan Sabnavis, quotes, repo rate
