HOME > BUSINESS > RBI unlikely to cut rates in a hurry – SBI

RBI unlikely to cut rates in a hurry – SBI

State Bank of India, the country’s largest bank, said it expects the Reserve Bank of India to cut key interest rates only after sees a “sustained” downward trend in inflation, and this is likely to take at least 2-3 months more.

“We maintain that RBI may go for the rate cut in a decisive manner (50 basis point or so), but only after it is convinced that CPI downward trajectory is sustained and inflationary expectations are anchored decisively lower. This may happen materially anytime after February 2015,” SBI said in a note today.

inflation-india

It pointed out that the dip in whole-sale price inflation to 0% in November was largely a base-effect, with some secular component as well.

“The lowest CPI inflation in Nov’14 is mainly aided by base effect as inflation during corresponding period last year was hovering in double digit territory(11.16%). If we strip out the base effect, CPI inflation would have been at 5.4% and WPI at 1.1%,” it said.

There is a lot of debate in the market about whether the RBI should cut rates immediately or not.

However, SBI added that it was not JUST the base effect that was leading to lower inflation prints in recent months.

“As far as incremental impact is concerned, there has been a significant 220 basis point decline in retail inflation since Apr’14. Going forward, the contribution of positive base effect to CPI inflation in coming months will be only seen post Jan’15. However, in Dec’14 and Jan’15 the negative contribution of base effect to the index will be there but with much lower magnitude.”

The high-base effect, SBI pointed out, only kicked in in November.

“It is thus naive to say that base effect is pulling down retail as well as wholesale inflation, as the impact is only being felt from Nov’14 onwards (for the statistically minded, a negative base effect will only imply that such impact is pulling down inflation, and not the other way around.) However, the good thing is that we are looking at a sub 6% inflation in March 2015 itself. WPI is likely to be around 1% by March 2015.”

SBI also flagged the continued decline in industrial production, especially in the capital goods segment. Capital goods, like machinery, power etc, are the most sensitive to expectations of growth or otherwise in an economy, and have a long ‘lead time’.

India’s industrial output declined to 36-month low of 4.2% in Oct’14 primarily due to huge decline in manufacturing activity (-7.6%). However, both mining and electricity grew by 5.2% and 13.3% respectively.

“We expect this maybe the last month of decline in industrial output and going forward IIP data will inch up further… In Feb 2009, after the crisis, manufacturing had declined by 9.1%, and it was led by mostly capital goods components. As on October 2014, the decline is still being led by capital goods components. This trend is disturbing, as it indicates, investment revival still remains elusive even after 5 years,” SBI said.

It also noted that after nearly 21 months of depositors actually losing money on their bank deposits due to inflation, the returns have come back to positive territory now.

“The real interest rate is now in positive territory for last couple of months after hovering in the negative territory for nearly 21-months. As RBI left the rates unchanged and both CPI and WPI inflation moderated further, the real deposit rates reached as high as 4.44% during Dec’14 by taking CPI as proxy and 8.82% if WPI is taken as proxy.

“Interestingly, it leads to a situation, where real interest rates will be higher than nominal interest rates for most banks in the deposit category of less than 1 year (upto 90days). This is way above the 0.5% (CPI) and 1.5% (WPI) real rate prevailing on a cross cyclical basis in India,” it added.

[socialpoll id=”2237981″]

Follow ULTRA.news
NPA crisis: We’re not out of the woods yet – SBI official A senior State Bank of India official warned against assuming that the bad loan malaise affecting the Indian banking sector has started declining.Praveen Kumar Gupta, MD in charge of retail and digital banking, said one cannot directly draw conclusions by extrapolating trend...
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 ...
Moody’s to train SBI employees to appraise loan applicants State Bank of India, the country's largest bank, said Moody’s Analytics will train its employees to source, appraise and monitor loans.SBI employees will be granted the Moody’s Analytics Certificate in Commercial Credit (CICC) as part of the program.The program has been...
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...
Don’t ignore cards in the era of mobile payments – SBI The ongoing rollout of Bharat QR and other mobile payment systems could result in some pain for banks as it could make it harder for their card or PoS business to become profitable.According to an estimate by the State Bank of India, card swipe transactions cost significantl...
SBI warns against fraudsters luring customers with fake deposit schemes India's biggest bank, State Bank of India, has been forced to issue warning letters to its customers after fraudsters targeted the banks' customers with fake schemes and offers.An email message has been sent to customers warning them against depositing money on the advice of...
SBI, Canara Bank lead in opening unorganized sector pension accounts State Bank of India has opened the largest number of accounts under India's universal pension scheme for the unorganized sector, the government said today.State Bank of India has opened 51,000 out of the total 3.07 lakh pension accounts opened by banks under the scheme, whic...
SBI waives processing fee on car loans till Dec State Bank of India, India's largest commercial bank, has waived processing charges on car loans till the end of the year, while halving the charge on some personal loans till Sep 30.The bank did not specify the new rates.It already has zero processing fees when someone t...
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...
SBI, IOB and Corp Bank only PSBs to charge for mobile NEFT Only three public sector banks -- State Bank of India, Indian Overseas Bank and Corporation Bank -- levy charges on even the smallest money transfer done via mobile phones using the National Electronic Fund Transfer or NEFT facility, data compiled from public sector banks show. ...
SBI enables Samsung Pay for some of its debit cards State Bank of India said it was enabling payment by Samsung Pay service on some of its higher debit card variants.Samsung Pay works by mimicking the 'swiping' action of a credit or debit card by sending a magnetic pulse. The 'card machine' or point of sale machine mistakes th...
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 clears SB Life IPO, to sell 80 mln shares State Bank of India said it had decided to conduct an initial public offer for some of its shares in its insurance subsidiary SB Life Insurance. BNP Paribas Cardif S.A. would also sell some of its shares in the offer.It said the offer would involve 8 crore shares.No valua...
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 raises Rs 15,000 cr in India’s largest QIP State Bank of India said it raised Rs 15,000 cr by selling its shares in a 'qualified institutional placement' or QIP, making it the largest such transaction in Indian share market history.QIP's usually involve selling shares exclusively to big institutions such as mutual fun...
SBI opens QIP at floor price of Rs 287.58 State Bank of India said its committee of directors for capital raising has decided to start receiving bids a qualified institutional placement of its shares with a floor price of Rs 287.58 per equity share."The Bank may offer a discount of not more than 5% to the Floor Pric...
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...
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...