The Reserve Bank of India (RBI) indicated that interest rates have bottomed out and yields are inching up in debt instruments as well as deposits, in clear indications that there may not be any rate cuts in the near future. “Scheduled commercial banks have effected complete pass-through of the policy rate cuts of 115bps (100 basis points = 1 percentage point) to weighted average lending rate (WALR) on fresh rupee loans as well as outstanding loans since March 2020,” the central bank said in the monthly state of the economy report said. WALR is the average rate for loans.
While central banks across the world had slashed interest rates after the Covid-19 outbreak two years ago, those in the developed countries are now beginning to raise rates to tame inflation, which is at the highest levels in several decades. In India, the RBI has kept policy rates steady, arguing that it needs to support higher economic activity.
The monthly report also highlighted that the cost of deposits for banks was gradually moving up. It added that banks have reached an inflection point regarding deposit rates. “With an increase in credit demand and lower accretion in aggregate deposits, banks have started pricing in their deposits at higher rates in recent months. As a result, the median-term deposit rates (MTDR) rose marginally by 5 bps since October 2021. ”
