RBI cuts repo rate, banks yet to reciprocate

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New Delhi: The Central Government is working hard to resolve the liquidity problem in the financial system.

The government has already pumped in Rs 145,000 crore last week through cash reserve ratio cuts, by providing money for farmer loans and on Monday the Reserve Bank of India (RBI) made another repo rate cut of 100 basis point.

Now banks can borrow from RBI at eight per cent as against nine per cent.

Union Finance Minister P Chidambaram justifies the cut in repo rate.

"The cut in the repo rate is consistent with our objective of moderating inflation as well as sustaining satisfactory growth. The cut in the repo rate will be beneficial to many section of the people, especially borrowers as well as investors and I hope investors will continue to take forward with their investment decision," says Chidambaram.

So, could the rate cut stop the burn on your pocket and will you be shelling out less on your home and auto loan EMIs?

Bank of Baroda says, 'Interest rate cannot come down overnight and deposit rates have to come down first."

"'We will soon decide whether to pass on the benefit to customers," Punjab National Bank says whereas, HDFC, the biggest home loan lender says, "It's too soon to say if companies will cut home loan rates."

Financial analysts also agree with the views of the banks.

"The immediate effect is some breathing comes into the industry and banking sector which was facing a severe liquidity crunch. But the major take away is that gradually we are going to see interest rates come down and I think that cycle might take some time but we are going to see interest rates softening," Ashish Kapur, financial analyst, says.

Over the past few weeks, the Finance Minister and the RBI have been using every method in the rule book to battle lack of faith and fund in the system.

More is expected from RBI as it goes for another mid-term review of monetary policy on October 24 and maybe another dose of confidence is needed to go with this flow of liquidity.

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