Mumbai, Oct 27: Experts and analysts have said the 25 basis points rate hike by Reserve Bank, accompanied by a dovish guidance for the future, was largely on expected lines but cautioned that its move to deregulate rates on savings accounts will put lenders under pressure.
“On expected lines the central bank raised the policy rates...the cumulative effect of increased interest rates will manifest in cooling down demand and inflation, and we might see the effects in the last quarter of FY12,” consultancy firm Ernst & Young's National Leader (Global Financial Services), Ashvin Parekh said.
Maintaining that the hike was “justified”, leading ratings agency Crisil said, “The rate hike could be the last one, only if downward pressures on inflation remain dominant.” It said there is sufficient data available to indicate that RBI will achieve its target of having inflation at 7 per cent by March 2012.
On the apex bank's move to peg down growth to 7.6 per cent, American investment bank Goldman Sachs sounded sceptical. “Our FY12 GDP growth forecast remains at 7 per cent with downside risks and we think the RBI may need to still revise its growth forecasts downwards.” Crisil's rival Fitch, however, said the combination of rate hikes and savings rates deregulation have come as a double blow to the banks, who are not able to pass on the RBI hikes to borrowers on low credit demand.
“The combination of another interest rate rise and the deregulation of Indian savings accounts puts more pressure on the banks,” Fitch Ratings said in a statement. Parekh said the timing for the savings deregulation could not have been better but added that the bank margins will be under pressure.
“Market determined (rate) will push up the rate curve and increase the costs for banks but will benefit depositors.” “Some banks may face abrasions due to ALM (Asset Liability Management) mismatch and increased costs. However, now both the assets and liabilities of the banks will be attuned to market rates and bring better efficiency in the banking system,” he added.