RBI cuts key interest rates; will help investment, says Pranab

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Agencies : Mumbai, Tue Apr 17 2012, 11:28 hrs

After a gap of three years, Reserve Bank Governor D Subbarao today slashed short term lending rate by 0.50 per cent to 8 per cent, a move that will reduce the cost of home, auto and corporate loans. The reduction in the repo rate at which RBI lends to banks, was prompted by deceleration in growth and softening of inflation. The cut is aimed at spurring growth to 9 per cent levels, seen before the global financial crisis that began in 2008, Subbarao said while unveiling the annual credit policy here. "The reduction in the repo rate is based on an assessment of growth having slowed below its post-crisis trend rate, which, in turn, is contributing to the moderation in core inflation," the Governor said. Finance Minister Pranab Mukherjee was upbeat about the rate cut, saying it will help revive investment. Mukherjee also said the government would take additional steps in coming weeks to bolster economic growth. RBI has pegged the GDP growth rate for 2012-13 at 7.3 per cent. It is expected to be 6.9 per cent in 2011-12. After two consecutive cuts since January, the Governor, however, retained the cash reserve ratio at 4.75 per cent.

Subbarao, however, ruled out further reduction in policy rate in the immediate future citing persistent upside risks to inflation and possible fiscal slippages driven by higher oil subsidies. It expects the inflation to be around 6.5 per cent by March 2013. "It must be emphasised that the deviation of growth from trend is modest. At the same time, upside risks to inflation persist. These considerations inherently limit the space for further reduction in policy rates," he said. The decision is likely to prompt the banks to cut lending rates for home, auto and corporate loans, experts said. RBI has raised lending rates 13 times between March 2010 and October 2011 to contain inflation that had been hovering near double-digit. This had led to clamour by industry to cut rates and spur industrial and economic growth that has slowed down considerably during the past few quarters. In order to ease tight liquidity situation, Subbarao announced doubling the borrowing under the Marginal Standing Facility for banks to 2 per cent of their deposits with immediate effect. It also permitted banks to borrow under the MSF even if they have excess government securities holdings. On the growth front, RBI expects FY'13 to be moderately better than the fiscal gone by. It has pegged GDP growth at 7.3 per cent, which is 0.3 per cent lower than the government projection for 2012-13. Growth in 2011-12 is seen at a 3-year low of 6.9 per cent. Even though spurring growth has taken the priority at the Mint Road, RBI continues to be worried about the inflation scenario, calling it as "challenging" due to the sharp spikes in crude prices and food articles in the recent months. Noting the moderation in manufacturing inflation, the Governor pegged the annual overall inflation target at 6.5 per cent for FY'13 (which is 0.5 per cent lower than its projection for FY'12), saying the price rise will be range-bound through the year. Inflation was the key driver that guided the Reserve Bank to tighten money supply, and later hold rates during the past 36 months. The period also saw it inflicting 13 simultaneous hikes, by 3.75 per cent in repo rates over the 19-month period, making it one of the most aggressive central banks in the world. Apart from hurting investment activity, the rate hikes severely hurt the retail borrowers as higher loan repayments put household budgets for a toss. RBI made a conscious effort at placating this class by reiterating that banks should not charge prepayment penalties from home loan borrowers. It also announced to set up a

working group to assess the possibility of having long-term fixed interest products which will not be exposed to interest rate changes. As for the bank non-food bank credit, the apex bank sees it growing at 17 per cent this fiscal, (marginally higher than that of FY'12), and deposits at 16 per cent. Besides, RBI has set-up a working group under K U B Rao to look into all aspects relating to gold loan by NBFCs. "There has been significant increase in loans by NBFCs against gold in the recent period. There are also complaints against some NBFCs that they are not scrupulously following proper documentation process and know your customer (KYC) norms, among others, in order to quickly dispose off the cases relating to gold loans," RBI said. Gold imports have also increased sharply, raising macroeconomic concerns, it added. The working group is expected to submit the report by end-July 2012, it added. RBI will undertake the mid-quarterly review of the monetary policy on June 18 while first quarter review is scheduled on July 31.

Summit sex scandal: Obama wants 'rigorous' Secret Service probe

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Agencies : Cartagena (Colombia), Mon Apr 16 2012, 10:39 hrs

US President Barack Obama has said he expected a "rigorous" probe into a sex scandal involving Secret Service agents, warning he would be "angry" if the claims were proven true. The incident, which saw 11 Secret Service and five military personnel pulled from their security duties in Colombia at the Summit of the Americas, overshadowed the talks attended by Obama and other regional leaders. The US Secret Service, which has sent the men back to the United States, is investigating claims they brought prostitutes to their hotel rooms in Cartagena late Wednesday and had a dispute over payment with one of the women. "I expect the investigation to be thorough and rigorous," Obama said at a press conference with Colombian President Juan Manuel Santos at the end of the summit. "If it turns out the allegations that have been made in the press are confirmed, then of course I'll be angry." The military is conducting a separate probe and has confined the servicemembers involved to their barracks. None of the Secret Service personnel involved both agents and uniformed officers was assigned to Obama's personal security detail. But Obama, who is facing a tough re-election battle in November, stressed that all members of his travelling party should be on their best conduct as they represent the United States. "My attitude with respect to the Secret Service personnel is no different than I expect out of my delegation sitting here. We're representing the people of the United States," he said. "And that means that we conduct ourselves with the utmost dignity and probity. "What's been reported doesn't match up with those standards," the president added. While prostitution is legal in designated areas in Colombia, such behaviour would violate the agency's rules of conduct, in part because it could expose the agents to blackmail, facilitate espionage and help an enemy get inside a security perimeter, US congressman Peter King told The New York Times.