Expect PSU banks to cut interest rates: Arun Jaitley

arun_jaitleyWith most PSU banks remaining reluctant to pass on the benefit of monetary policy easing by RBI, Finance Minister Arun Jaitley on Sunday said he expects the lenders to cut interest rates soon.

“We do not put pressure on them (PSU banks for interest rate cut). We only expect and our expectations come true,” Jaitley told reporters here after addressing the board of the Reserve Bank of India.

On the interest rate cut in future, RBI Governor Raghuram Rajan said it would depend on the pattern of inflation and added that the central bank would carefully watch the impact on unseasonal rains and hailstorm on the price situation.

While the RBI has cut interest rates by 0.50 per cent between January-March, only a few banks have lowered their rates since January 15, when RBI announced the first of its two successive rate cuts.

The issue of lowering interest rates was also discussed earlier this month in a meeting of heads of all state-run banks, which was chaired by Jaitley.

Some of the banks had said at that time that they would wait for further signals on RBI’s monetary policy on April 7 before passing on the benefits to their retail and corporate borrowers.

Asked whether the dovish statement by the US Federal Reserve would impact monetary policy decisions at home, RBI Governor Raghuram Rajan said the primary factor deciding interest rates would be inflation.

“While external environment is a constraint, a lot of what we need to do has to do with the internal environment. As the Fed start raising interest rates, my reading of the latest statement is they may take a little longer… But I do not think that that will impinge on the process in India”.

“That (Fed decision). . . will be a factor but it won’t be the primarily factor. The primary factor in allowing for greater monetary easing will be the pattern of inflation and how that proceeds,” Rajan said.

Last week the Fed said it has removed a pledge to remain “patient” on raising rates, signalling a possible mid-year rate increase. Emerging markets were jittery in the run-up to the Fed policy meeting outcome as any unexpected decision on rate hike can lead to flight of capital from riskier assets.