Deposit rates have peaked, set to decline amid CRR cut, says Axis Bank’s Rajiv Anand

Bank deposit rates have peaked and are expected to decline over the next three months due to the enhanced liquidity from the Cash Reserve Ratio (CRR) cut, says Rajiv Anand, Deputy Managing Director of Axis Bank. Talking to CNBC TV-18 after the RBI’s monetary policy recommendations on Friday, he also projected a modest rise of 3-5 bps in net interest margins (NIMs) for most banks.

The Reserve Bank of India’s (RBI) decision to reduce the CRR by 50 basis points (bps) to 4% from 4.5% has sparked discussions on its impact on liquidity, deposit rates, and the timing of potential rate cuts. This CRR cut, the first since March 2020, is expected to inject ₹1.16 lakh crore into the banking system, according to RBI Governor Shaktikanta Das.

The RBI’s Monetary Policy Committee (MPC) kept the repo rate unchanged at 6.5% for the 11th consecutive time on December 6, with a 4:2 majority. The decision aligned with expectations from a Citizens MPC conducted by CNBC-TV18, which predicted a rate pause with a 4:1 majority.

However, economists believe that rate cuts are on the horizon. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, noted that inflation could stabilise at 4% by mid-2024, opening the window for a rate cut in February. She emphasised the importance of global factors and fiscal policies in determining the timing.

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Kaushik Das, Chief Economist at Deutsche Bank, also supported the CRR cut as a precursor to repo rate reductions. He predicted a 50-bps rate cut spread across February and April 2024, depending on the budget’s fiscal consolidation measures.

Shobhit Mehrotra, Head of Fixed Income at HDFC AMC, highlighted that the easing cycle might be limited to 50 bps. He suggested that rate cuts could be more effective if spaced out, with the potential second cut occurring beyond April.

Kanika Pasricha, Chief Economic Advisor at Union Bank of India, pointed to challenges in achieving a 7% GDP growth rate in FY25. She attributed this to global uncertainties and the lack of a broad-based recovery in private capital expenditure.

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Ajay Srivastava, CEO of Dimensions Corporate Finance Service, criticised the ongoing struggle to control inflation, noting that it has remained above the 4% target for three years and is unlikely to ease until the next fiscal quarter.

Srivastava said that the battle against inflation appears to be lost, with visible signs of defeat in policymakers’ demeanour, warning of its long-term consequences.

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