SBI will cut interest rate based on evolving circumstances

Mumbai, March 4 (IANS) India's largest mortgage lender State Bank of India (SBI) would decide on reducing its interest rates on the basis of emerging circumstances, a top official said Wednesday.

Welcoming the Reserve Bank of India (RBI) decision to cut its key lending rates by 25 basis points, SBI chairman Arundhati Bhattacharya said: "Our bank will take an appropriate call of a cut in base rate by looking at all evolving circumstances."

She said with the government embarking on a path of qualitative fiscal consolidation and the formal adoption of inflation targeting, inflation trajectory is expected to stay benign and will aid banks in their decision making.

In a surprise development, RBI cut its key lending rates by 25 basis points expecting inflation to soften in the coming fiscal.

The RBI also expressed concern over the postponement of fiscal consolidation by a year.

Getting some positive cues from the national budget tabled last week, and sensing an economic recovery, the repurchase (repo) rate has been cut to 7.5 percent from 7.75 percent, while the reverse repo rate has been adjusted to 6.5 percent from 6.75 percent.`

The repurchase rate is the interest commercial banks pay for borrowing money from the central bank to meet short-term fund requirements. The reverse repurchase rate is the interest central bank pays when surplus short-term funds are parked with it by banks.

The rate cuts immediately follow a far-reaching agreement between the government and the RBI on Monday under which the central bank will aim to bring the country's retail inflation below the 6-percent mark by January 2016 and to around 4 percent by the end of 2016-17.