Bankers pitch for pause on interest rate hikes

19 Jul 2011

Concerned over the sharp slowdown in credit offtake, bankers have asked the Reserve Bank of India (RBI) to hold back the rate hikes it started in March last year in a bid to get a grip over rising inflation.

The past 16 months have seen the apex bank raise the key repo rate 10 times in an unsuccessful attempt to rein in inflation that is currently running at 9.44 per cent.

The repo rate, the interest rate that the RBI charges when it provides liquidity to banks is now 7.50 per cent as against February last year, when the repo rate stood at 4.75 per cent.

The plea for maintenance of status quo on the key rate was made at a customary pre-monetary policy meet between the RBI and senior bankers in Mumbai yesterday.

Bankers told RBI deputy governor Subir Gokarn that even as a slowdown in credit growth was seen because of the frequent rate increases, any further hike would hit disbursements hard.

According to Bank of Baroda chairman and managing director M D Mallya, who spoke to reporters following the meeting, new projects were in the pipeline but there was ''a slowdown in credit demand and offtake. '' Mallya who is also chairman of the Indian Banks' Association (IBA), told reporters that he feared that the slowdown would become even more pronounced if the RBI continued to puyll up key interest rates.