Interest rates

Interest rates unlikely to fall, RBI warns

MUMBAI: The Reserve Bank of India (RBI) reported on Wednesday that interest rates have bottomed and yields are gradually rising on debt securities as well as deposits, a clear signal that there could there will be no rate cuts in the near future.
“Planned commercial banks have made full pass-through of policy rate cuts of 115 basis points (100 basis points = 1 percentage point) to the weighted average lending rate (WALR) on new rupee loans as well as on outstanding loans since March 2020,” the central said. bank said in the monthly report on the state of the economy. WALR is the average loan rate.
While central banks around the world cut interest rates after the Covid-19 outbreak two years ago, those in developed countries are now starting to raise rates to tame inflation, which is at its peak. high level for several decades. In India, the RBI kept policy rates stable, arguing that it must support higher economic activity.
The monthly report also pointed out that the cost of deposits for banks is gradually increasing. He added that banks have reached an inflection point regarding deposit rates. “With an increase in credit demand and a decrease in aggregate deposit growth, banks have started pricing their deposits at higher rates in recent months. As a result, median term deposit rates (MTDR) increased slightly by 5 basis points since October 2021.”
The RBI’s statement that the rate pass-through is complete means that banks have used all their leeway to lower interest rates. As the next interest rate review by the central bank is expected to be a rate hike, that means it’s as good as it gets for borrowers.
The good news for depositors is that interest rates could rise slightly. However, the rise in deposit rates may not be very strong as the central bank maintained its dovish stance in monetary policy last week, citing the absence of demand pressures as evidenced by the output gap and the fall in inflation.
The state of the economy report said excess liquidity in the banking system moderated, with daily net cash absorption by the RBI falling to Rs 6.4 lakh crore in the second half of January to February 2022, compared to Rs 7 lakh crore of December. 2021 in mid-January of this year. This was due to the RBI’s liquidity rebalancing through inverse floating rate repo auctions (VRRR).
“Gradual improvement in the size of absorption via VRRR at higher thresholds pushed short-term rates higher,” the report said. As a result, interest rates rose across the entire long-term money market segment. The 3-month treasury bill rate and the certificate of deposit (CD) rate moved towards the reverse repo rate, despite lower overnight rates. At the same time, the 3-month Commercial Paper (CP)-NBFC rate traded above the reverse repo rate, reflecting heavy issuance.