SBI Chairman Backs Status Quo On Rates Ahead Of RBI Policy Decision

Moneycontrol’s reports state that State Bank of India (SBI) Chairman C.S. Setty has said a pause in repo rate action would be appropriate at the current stage, citing prevailing growth and inflation conditions in the economy ahead of the Reserve Bank of India’s monetary policy announcement scheduled for June 5.

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Speaking ahead of the Monetary Policy Committee (MPC) meeting that began on June 3, Setty said the existing macroeconomic environment supports maintaining the current policy rate rather than making any immediate changes.

Growth And Inflation Remain Key Factors

According to Setty, the assessment is based on the balance between economic growth and inflation. While the RBI has projected economic growth at 6.9%, SBI’s internal estimates indicate growth could be closer to 6.6%.

He also noted that inflation is expected to remain in the range of 4.6% to 4.7%, a level that supports a pause in policy action at this stage. The RBI’s MPC will review domestic and global economic developments before announcing its decision later this week.

Deposit Rate Transmission Remains Incomplete

Setty highlighted that any future increase in policy rates could create challenges for banks, particularly because transmission of earlier rate changes has not been fully reflected in deposit rates.

He said lending rates have adjusted more quickly due to the widespread adoption of repo-linked lending rates for retail and small business loans. However, banks have comparatively less room to raise deposit rates without affecting profitability.

In light of the fact that loans with floating interest rates have started to become a significant portion of the banking system, any rise in the repo rate will directly impact the return on the loans being offered by lenders.

Credit Demand Continues To Remain Strong

The SBI Chairman also pointed to sustained credit demand across the banking sector. He noted that the June quarter is typically a slower period for loan growth compared with the March quarter, yet credit expansion has remained healthy.

According to industry data and SBI’s own business trends, credit growth continues across multiple segments despite seasonal moderation usually seen during the first quarter of a financial year.

Setty said deposit growth of around 10% to 11% should be sufficient to support credit expansion in the range of 13% to 15%. However, stronger-than-expected loan demand could increase pressure on deposit mobilisation if interest rates rise.

Focus On Upcoming Policy Outcome

The RBI’s policy decision comes at a time when markets are closely monitoring inflation trends, domestic growth indicators and global developments.

Setty noted that future interest rate decisions will ultimately depend on how inflation evolves and the impact of economic conditions on growth. He also pointed to ongoing developments in West Asia as a factor that could influence economic activity and credit demand in the coming months.

The MPC’s policy announcement on June 5 will provide further clarity on the central bank’s assessment of inflation, growth and liquidity conditions.