Rate cuts may spur credit growth, however a government will have to keep a closer eye on it's inflation in order to minimize the demand pull inflationary effect

In a relatively low interest rate environment, Commercial Banks will record growth in deposits via the growth in the Current And Savings Accounts (CASA) base owing to the prevailing low rate differential between Fixed Deposits and Savings Deposits

During the Global Financial Crisis (GFC 2008 - 2010) Registered Finance Companies (RFCs) managed to achieve attractive interest margins as RFCs genarally borrow short term and lend long term as their high interest earning lending portfolio is financed by lower cost borrowings

In a declining interest rate scenario, Banks will reprice their liabilities (deposits etc.) faster than their assets (loans etc.)resulting in higher Net Interest Margins in the short term.

What we are looking for is interest rate cuts to be beneficial to the market.

Capital adequacy is a prime requirement for credit growth when it comes to a Commercial Bank. However, having a total Capital ratio (Tier I + Tier II) above 15% (according to Basel II regulatory framework) illustrates inefficiency of the Bank!