The repo-rate was at 4.75% in 2010 February now the same stands at 7.50%. Repo-rate is the interest that the central bank charges when it provides liquidity to banks.
Senior bankers used the customary pre-monetary policy meet between the Central Banker to air their plea to the regulator. The bankers told RBI deputy governor Subir Gokarn that the frequest rate increase has slowed down credit growth but any further increase will hurt the disbursenents.
Chairman of the Indian Banks" Association (IBA) M.D. Mallya, also the chairman and managing director of Bank of Baroda told reporters that though there were new new projects but “a slowdown in credit demand and offtake" has put many of these projects on the back burner. His fear was that if the RBI continued its policy then it will adversely affect the projects and investment sentiments.
At the meeting the banks asked for more clarity on behalf of the RBI over its move on the monetary policy front. Although the RBI makes forward looking statement on interest rates although it has not been explicit enough.
RBI has projected a 19% growth in advances for the banks this year. Mallya said it was too early at this stage to scale down the target. One important thing he said was that there are not much demand for credit from the infrastructure sector for roads and power projects.
Data released by the Central bank shows credit went up at a slower pace of 3.75% in the Q1 FY12. The same was at 5% last year.
The central banker will announce its monetary policy on July 26. As of now there is no clarity if the RBI will hold its rate hike cycle. Although analysts say that considering that inflation numbers the chances are it will raise the rate again.
On few public occasion the RBI governor, D Subbarao had said that managing inflation is the top priority of the bank. He implied that if necessary one should sacrifice growth in order to control inflation.