Banks may not raise rates despite RBI move

Even as some analysts are reading the recent steps by the Reserve Bank of India (RBI) to stem depreciation of rupee as monetary tightening, several banks are thinking otherwise.

In order to curb speculative position in foreign exchange market and also to promote investment in rupee debt instruments, RBI hiked the rate on borrowing from marginal standing facility (MSF) by 2 per cent to 10.25 per cent recently. Further, it curtailed banks’ overnight borrowings to Rs 75,000 crore and announced a Rs 12,000 crore government bond buyback.

These measures are expected to increase rates in the market, which many fear may lead banks to hike their lending rates.

But some public sector banks like State Bank of India, Allahabad Bank feel that these steps by RBI should not be read as monetary tightening. Rather, they are temporary steps to reduce depreciation of rupee, banks feel.

Allahabad Bank said it is not going to hike lending rates despite RBI raising rates and tightening liquidity to stem rupee volatility.

The RBI stance would not put any pressure on the funding cost and there is no need for an upward correction of the base rate, Allahabad Bank said.