Experts tip lending rates to fall 100 bps

Auto and home loan borrowers can expect some relief soon as banks and the RBI are likely to go for a 1 percentage point cut in interest rates in the backdrop of falling inflation.

While bankers and experts expect the lending rate to fall by about one percentage point in the near-term, the Prime Minister's Economic Advisory Council (PMEAC) has strongly pitched for rate cut by the RBI in its monetary policy review later in the month.

"There is every possibility of a decline in interest rates... unless some major events take place, interest rates should come down by at least 100 basis points," Union Bank of India Chairman and Managing Director M V Nair said here.

The base rate of commercial banks, according to RBI data, ranges from 10 to 10.75 per cent.

The trend for the monetary strategy going forward, according to experts, is expected to be set by the RBI in its third quarterly monetary policy review on January 24.

The RBI, which has increased key rates 13 times since March, 2010, had indicated in its December policy review that it could reverse the tight monetary policy stance in case inflation remains under control.

Food inflation, according to the latest data, fell into the negative zone in the week ended December 24, declining by 3.36 per cent.

With regard to headline inflation, it fell from 9.73 per cent in October to 9.11 per cent in November and is expected to decline further.
"I expect headline inflation could come down even below 7 per cent by March-end... The environment appears to be in favour of the RBI reversing its monetary policy stance," PMEAC Chairman C Rangarajan said.