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No further cut in bank rate, says Jalan

Bimal Jalan, Governor of the Reserve Bank of India, hinted that there would be no further cut in bank rate in the foreseeable future.

Speaking to newspersons at a post-Credit Policy briefing on Tuesday, the central bank governor said that spreads between the bank rate and call and money market rates and lending rates were already high.

"Banks should, therefore, try and see how they could reduce lending rates by reviewing their prime lending rates (PLRs) and spreads," he said.

"We have said in the policy statement that the bank rate is reasonable. So, no useful purpose will be served by a further reduction in the bank rate in the near future," Jalan said.

The policy will try to keep the bank rate stable in the near term unless inflation shows signs of resurgence. But as of now, inflation was at one of the lowest levels in recent years.

Though the RBI had lowered the overall gross domestic product (GDP) projection from the earlier 6-6.5 per cent to 5-5.5 per cent for 2002-03, Jalan felt that the overall macroeconomic scenario was not as bad as it seemed in the initial months of the monsoon failure.

He did not expect the drought to have any major impact in the context of the industrial recovery that was now underway.

"Industrial growth in showing signs of recovery, though it is not strong," he said.

Asked why the RBI had not deregulated the savings deposit rate (currently 4 per cent), Jalan said that RBI wanted to give savers some level of reasonable return. In any case, the effective cost of savings deposits for banks was just 3.4 per cent, he added.

Asking banks to move towards a more flexible deposit rate regime, Jalan pointed out that housing loans were setting a good trend by offering both floating and fixed interest rates.

To offer interest rate flexibility on deposits, banks had now been given the freedom to reset interest rates on variable rate deposits at different time intervals.

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