Mumbai | Hiking of interest rates may lead to moderation in banks' credit growth from the present levels of over 18 per cent, but it is unlikely to impact broader economic expansion, the Reserve Bank said on Wednesday.
Speaking to reporters after the central bank hiked interest rates by 0.25 per cent and indicated that there may be more such moves in the offing, Deputy Governor Swaminathan J said it typically takes around two quarters for the hikes to get transmitted to actual lending rates for end borrowings.
"Some moderation will occur relating to demand as well as rate (hike) together. But the moderation from 18 to 20 per cent (credit growth) is not bad and will be adequate enough to support growth," the commercial banker-turned central banker said.
He added that the credit growth is coming at a decadal high of over 18 per cent at present, as against the ten-year average of 12-14 per cent and hinted that the loan books expansion at the average rate is sustainable for the system.
Answering another question earlier at the same press conference, Governor Sanjay Malhotra said that a few percentage points "here and there" should not matter too much.
"Will it (credit growth) moderate going forward? I think it (credit growth) will continue to be strong. A few percentage points here and there should not really matter too much in the overall scheme of things," he said, adding that the credit growth will continue to support economic growth.
Earlier in the day, the RBI hiked the repo rate by 0.25 per cent, and the six-member rate-setting panel also voted to shift the stance to "calibrated tightening". Malhotra also made it clear that people should not expect any rate cuts in the near term.
Replying to a specific question on reluctance among major banks to hike deposit rates, Malhotra said the surplus systemic liquidity will not last for long, hinting that transmission in the deposit rates will also eventually happen as the banks will have to go scouting for fresh funds to cater to credit demand.
He, however, made it clear that hiking the cash reserve ratio or the quantum of deposits banks have to park with RBI for no interest is the "least preferred" tool for pulling out excess liquidity.
The RBI will use instruments such as variable reverse repo auctions and open market operations (OMO) purchases, he added.
When asked if the monetary policy committee, which voted unanimously for a 0.25 per cent hike, considered a 0.50 per cent increase, Malhotra said all the possibilities were discussed.
Meanwhile, when asked about the importance of global factors in monetary policy making, Malhotra maintained that while domestic conditions are prioritised, global factors are indeed factored in while reaching a decision.
Amid rate hikes by countries across the world, Malhotra made it clear that India's growth-inflation dynamics will govern the RBI's actions, and it will not catch up with other central banks' actions as much as some countries are forced to.
