Lending rate cuts key to recovery: BofA-ML - NDTV

New Delhi: The worst is over for the Indian economy, but it is expected to see a shallow recovery based on better rains and lending rate cuts, according to a report by Bank of America Merrill Lynch. According to the global brokerage firm, growth will not bottom out until lending rates come off as rates in India are still stuck at their 2008 cyclical peak. "We have grown more confident of our view that the best we can expect is a shallow recovery on better rains and lending rate cuts," BofA-ML said in a research note, adding, "Lending rate cuts are the only doable option to stimulate demand at this stage of the global cycle." According to BofA-ML, banks should be able to cut lending rates by another 0.50-0.75 per cent. "Recovery will come, as all recoveries do, from lending rate cuts and sneering at them as "temporary solutions" is delaying the turnaround," DSP Merrill Lynch India economist Indranil Sen Gupta sa id in the research note. Reserve Bank of India Governor D Subbarao had earlier echoed Finance Minister P Chidambaram's sentiments and urged banks to pass on the benefit of rate cuts to customers. (Read: Subbarao seconds Chidambaram, asks banks to cut rates) The RBI this year has already cut repo rate-the rate at which it lends short-term money to banks-by 0.75 per cent bringing it down to 7.25 per cent. The country's economy grew at a decade-low of 5 per cent in 2012-13, while credit growth also fell to 15.62 per cent from 17.76 per cent in 2011-12. Although some government banks are responding to the Finance Minister's call to cut lending rates, tight liquidity remains a constraint, the report said. Canara Bank has becom e the second bank after Bank of India to cut rates, even as the largest lender of the country SBI has said it cannot cut its base rate any further as it is already the lowest in the industry. (Read: Canara Bank cuts base rate by 0.30 per cent) "Early capex revival is a false hope for India as the country's investment slowdown is not much different, from other BRIC economies (Brazil, Russia, India and China). And capex will likely not revive till the global cycle turns in 2015," the report said. According to BofA-ML, the June quarter growth would be at 5 per cent, marginally higher than March's 4.8 per cent, on a better summer rabi crop. via Business - Google News http://news.google.com/news/url?sa=t&fd=R&usg=AFQjCNHh3f4932v1z2mN1-lsCgP7tCSZFw&url=http://profit.ndtv.com/news/economy/article-lending-rate-cuts-key-to-recovery-bofa-ml-324149

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