HOME > BUSINESS > Banks likely to soften interest rates from Sept – BoFA ML

Banks likely to soften interest rates from Sept – BoFA ML

Bank of America Merrill Lynch, a financial conglomerate, has said that it saw banks cutting interest rates in the upcoming slack season starting September.

It said, with the RBI keeping its rates on hold as part of its monetary policy review yesterday, chances of a ‘long hold’ of Reserve Bank’s interest rates are now high.

“We grow more confident in our call that the RBI will be on long hold after today’s second consecutive pause. This reinforces our view that banks will cut lending rates
in the slack season ending in September… On our part, we see the RBI on hold until December, to ride out possible El Nino risks. If the El Nino materializes, it will likely cut rates only in early 2015.”

The reason for the banks cutting interest rates has to do with two factors – growth and inflation.

“High rates continue to impede a recovery. Second, CPI inflation is peaking, with May inflation likely to come off to 8.4% from April’s 8.6%,” it said.

cpi-rates

“We have long highlighted that high rates are impeding recovery, although we fancy ourselves hawks. After all, the July tightening measures ended up pushing recovery by a year.

“FY14 growth has ended at an anemic 4.7%. April IIP will likely remain flat, at 0%, on June 12, after a decline of 0.5% in March. Although many pin hope on a revival of stalled projects, we continue to point out that these would not be taken up unless rates soften to re-ignite demand. While the worst is over, we continue to argue that recovery will need softer rates.”

It further pointed out that it has a GDP growth rate estimate of 5.4% in the current financial year, but that is contingent on lending rate cuts of 50-75bp and normal rains.

While El Niño risks are rising, the Modi government may prefer to combat agflation with supply side measures, it said.

The Reserve Bank had in its recent commentary said it was committed to keeping the economy on a disinflationary course, “taking CPI inflation to 8% by January 2015
and 6% by January 2016. If the economy stays on this course, further policy tightening will not be warranted.

“On the other hand, if disinflation, adjusting for base effects, is faster than currently anticipated, it will provide headroom for an easing of the policy stance…”

Consumer Price inflation, which has been around 10% for the last ten years, is seen declining to 7% levels by March 2015, well below the RBI’s 8% target, according to BoFA ML.

However, an El Niño-induced drought poses a 250-400bp upside risk to CPI inflation, it added.

“Food inflation has already reversed in May and is showing signs of collapsing in June, at both the retail and wholesale levels, due to the bumper rabi harvest,” it added.

BoFA ML expects NDA II government, like NDA I, to emphasize supply management rather than monetary tightening in case of an El Niño.

In NDA-I, RBI Gov Jalan cut CRR/rates during the 2002 drought (Chart 3).

In 2011, pointed out the firm, a committee headed by PM Modi (as Gujarat chief minister) on tackling inflation, had given 20 broad recommendations to UPA-II along similar lines.

Follow ULTRA.news
GST complaints coming mainly from tax-evaders – Adi Godrej Adi Godrej, chairman of one of India's largest manufacturing and real estate groups, said most of the complaints about the new Goods and Services Tax is coming from businesses that have been built on a model of tax evasion."The complaints about the GST are mainly coming from ...
NRI bank accounts see mega outflows as Gulf crisis hits earnings Net bank deposits by non-resident Indians have fallen by nearly 90% so far this financial year as more and more foreign workers dipped into their bank accounts in the face of a crisis in the Gulf region, industry association ASSOCHAM said.Net bank deposits -- the difference ...
RBI fines Religare Finvest Rs 20 lakh The Reserve Bank of India has imposed a monetary penalty of ₹20 lakh on Religare Finvest for the failure to comply with the directions/orders issued by RBI on an assignment transaction."An inspection of the company was conducted under section 45N of the RBI Act, 1934 during ...
Bank of Baroda slashes lending rates by 35 bps Bank of Baroda, one of the largest banks in India, has slashed the base rate and benchmark prime lending rates in keeping with the decline in inflation and loan demand.The company slashed the base rate to 9.15% from 9.5% with effect from Oct 1.Base rate is the minimum ra...
India to announce new industrial policy in October The Indian government is likely to announce a new industrial policy in October, the ministry of commerce and industry said, and sought feedback from the public.Commerce and industry minister Nirmala Seetharaman will hold a final round of consultations with stakeholders soon,...
Modi’s reforms drag, power plants to face low loads, study India’s energy sector is facing low capacity utilisation in power generation as plant load factor is estimated to remain low at around 62 per cent until 2018-19, noted a recent ASSOCHAM-Crisil joint study.The study also expressed concern over the slow pace of reform implement...
UPDATE: 99% of demonetized currency returned to govt Eight months on, the Reserve Bank of India is yet to finish verifying and counting the 500- and 1000-rupee notes surrendered by the public between Nov 8 and Dec 30, 2016, the finance ministry said in a statement on Aug 11.UPDATE: About ten days after this article was publishe...
Expecting waivers, farmers stop paying back bank loans? The write-off of farm loans in Uttar Pradesh and Maharashtra seems to be encouraging farmers in other states to stop paying back their farm loans to make sure that they will get the benefits of any farm loan waiver program in their state. This has led to a sharp increase in farm ...
IT companies using illegal tactics to force workers to resign: FITE The Forum for IT Employees, arguably the IT workers rights organization with the largest number of well-wishers and supporters, accused IT companies of using illegal and unethical means to force their workers to submit their resignations.In a meeting with Maharashtra Chief Mi...
Demonetization took India forward by 3 years – SBI The demonetization of currency notes late last year has doubled the number of card transactions and helped push India's payment digitisation by three years, State Bank of India said in a note."Even after seven months post demonetization, the transaction value is quite large ...
SBI cuts interest rates on bigger home loans State Bank of India, the largest Home Loan Provider in India has reduced interest rates of high value home loans.Home Loans above Rs. 75 lakhs will now be cheaper by one-tenth of a percentage from 15 June, 2017.The revised interest rates will be 8.55% p.a. for salari...
SBI says free ATM transactions not withdrawn India's largest bank, State Bank of India, denied reports that it had scrapped the facility of providing free ATM transactions.SBI CIRCULARThe bank was responding to media reports that said that all transactions will be chargeable from now on.Under the Reserve Bank o...
Telcos Change Tack as Net Neutrality Fight Enters Final Round in India A campaign by Internet Freedom FoundationIf you thought the fight over net neutrality was over with the sending of 1 mln emails to the TRAI two years ago, think again.The telecom service providers, who lost out that in the first round, are back. This time, however, their...
Indian IT industry facing layoffs as conditions worsen, warns Assocham Trump unveiled his 'Buy American, Hire American' program yesterdayIndian IT companies are bound to see "some laying off" of their work force back home due to various negative forces impacting the industry, Assocham -- an association of various industries -- warned."With ...
US Fed unlikely to reverse quantitative easing this year: HDFC Securities US Federal Reserve BuildingBroking and financial firm HDFC Securities Ltd said it does not expect the US Federal Reserve to start sucking out the liquidity that it has infused into the global financial market in the last nine years any time soon.The comments came in the ...
Rs 1.7 lakh cr deposited via demonetization may not be withdrawn – SBI Monthly cash withdrawals for all banks | source:SBI ResearchThe Indian banking system is likely to get a permanent liquidity boost of Rs 1.7 lakh cr due to the demonetization of high-denomination bank notes, State Bank of India chief economic adviser said in a note to bank c...
RBI refuses to make exceptions for Tirupati temple, Rs 4 cr old notes junked The Tirumalai TempleThe Reserve Bank of India has told the management of Tirumala Tirupati temple in Andhra Pradesh that the money deposited in the temple's hundis cannot be exchanged for new notes.The move was in response to a letter by the temple management asking if i...
After missing twice, India comfortably meets power sector targets for 12th five-year plan After missing its targets by wide margins in the previous two five-year plans, India is all set to comfortably meet or exceed all its power sector targets for the 12th five-year plan that ends this month.Five-year plans, borrowed from the Soviet Union, are a legacy of Nehruvi...
Wholesale price inflation hits 3-year high on high diesel prices High fuel prices, particularly that of diesel, lifted India's wholesale price index to its highest level since the Narendra Modi government took power almost three years ago.On an overall level, wholesale price of various items jumped 6.55% in February when compared with ...
No immediate plans for universal basic income: Indian Government India's welfare budget, 2016-17The Indian government has no immediate plans or proposals to institute a scheme of 'unversal basic income' in place of the myriad social welfare scheme run by the country at present, the finance ministry said in response to a query.The clar...