Saturday, March 28, 2009

Expect More Rate Cuts Soon

Government has really come down on Banks especially Private Sector banks for not passing the benefit of rate cut to the customer. While rate has been reduced by 4% by the government, the public sector banks reduced the rates by 2%-2.5% and the private sector banks reduced by around 1.5%. Most of Banks has hiked the rate by large extent last year and then reduced it marginally which has not made much difference in the credit flow.

Government is very serious and wants to remove clogs from the credit freeze lines. According to them the economy would soon go into bad shape until and unless banks reduce the rate. On the other hand with release of inflation data banks hope that government would reduce more rates. This has become a situation where government is looking at banks and banks at government related to reduction in rates. While the government at present is concentrating on elections there is definitely a bit of lack in incentive at their end. On other side senior government bureaucrats are still on the job and want banks to reduce the rate soon. While not much action is expected soon but formation of stable government would definitely be good sign.

The economy situation would not improve soon and banks need to reduce the rates. Discussions are ON at the Private Banks also related to reduction in rates. According to sources private banks are willing to reduce the rates but then there is a host of factors that they need to look before taking any action. The factors can be further reduction in rate by government or a collaborative movement where each banks reduce the rate together. The important thing is that some banks are indeed serious and can take the first step anytime soon. With this there would not be much option with other banks than to fall in line and reduce the rate. Expect this soon and at maximum few months after elections. Everyone is looking at other and this jinx will break soon.

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