The Reserve Bank of India held the customary pre-policy meeting on Friday and held a poll among Bankers. The poll revealed that most of the bankers voted for further reduction in the cash reserve ratio (CRR), said Mr. Pratip Chaudhuri, Chairman of State Bank of India.
The second quarter monetary policy review of RBI will be held on October 30.
Mr. Chaudhuri, after the poll said that the cut in CRR would be far better than the cut in policy rate. Adding to this, Mr. K R Kamath, Chairman and Managing Director of Punjab National Bank said that CRR cut is more preferable as it reduces the cost directly.
RBI told bankers that they should pass on the benefits of monetary easing to their customers during the pre-policy meeting. Mr. Kamath said, "The RBI asked that if the rate of interest is brought down, will there be a transmission."
RBI had cut CRR by 50 basis points in September so as to facilitate adequate liquidity in the system. Following this SBI had also reduced its base rates. Mr. Pratip said that the last time RBI had cut CRR, most of the banks had given effect to monetary policy transmission and he further adds that the RBI was mainly concerned about slowing credit growth and decreasing the asset quality.
As the government has introduced a number of reforms to earn investors confidence and earn credibility, the chances of further monetary easing are much brighter now as per the market participants. But due to higher inflation, RBI might find it difficult to ease its monetary stance.