More scope for banks to lower lending rates: Urjit Patel

RBI Governor Urjit Patel said there is more scope for banks to lower their lending rates as rate transmission has only been to the tune of 85-90 basis points as compared to the RBI’s 175 basis point rate cut since 2015.

Addressing the post policy press conference in Mumbai yesterday, Mr. Patel said the Monetary Policy Committee believes that the timely and effective transmission of policy rates by banks can be improved by means of a quicker and effective resolution of banking sector’s non-performing assets, speedy recapitalisation of the banking sector and full implementation of the formula for determining the interest rates on small savings.

RBI Governor said the Monetary Policy Committee has exercised abundant prudence to keep policy rates on hold, awaiting a



clear and unbiased assessment of inflation. The Governor added that the short-term macroeconomic configuration remains clouded due to the transitory effects of demonetisation and transient factors like stubborn CPI inflation and uncertainty over global food and fuel prices. 

Mr. Patel, however, added that the Committee is dedicated to achieve the target of 4 percent CPI inflation while keeping in mind the objective of growth.Mr. Patel further clarified that the shift in policy stance from accommodative to neutral will minimise the cost of any collateral damage in order to achieve the target inflation and growth figure. He added that a neutral stance will provide RBI sufficient time and flexibility to make its assessments on how to achieve the said targets.