Union Bank of India first off block to cut base rate

MUMBAI, Dec 29 (Reuters): State-run Union Bank of India said it has cut base rate by 10 basis points to 10.65 per cent, becoming the first Indian bank to do so this year, signalling interest rates may start softening in the economy. India's main policy rate is at its highest since July 2008 after the central bank raised rates 13 times since March 2010 to rein in high inflation. "Credit growth is not very high and interest rates have peaked so we thought it is a good time (to pass on the benefit)," MV Nair, chairman and managing director of the bank, told the news agency. Indian banks' loans have grown 7.4 per cent in the current financial year so far, compared with nearly 11 per cent last year. The Reserve Bank of India (RBI) has set a loan growth target of 18 per cent for the year. "We have to see the signal that Reserve Bank gives but rates coming down will be very gradual. It may stand steady one or two quarters," Nair told CNBC-TV18, when asked whether he sees a 50-60 basis points fall in lending rates by March. Pausing its interest rate tightening in its policy review on Dec. 16, the central bank signalled a shift in its focus to growth from fighting inflation. "From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth," the RBI said in a statement. The RBI's third-quarter policy review of the monetary policy is on January 24. Last week, RBI Governor Duvvuri Subbarao said the economy is poised to miss the central bank's growth forecast of 7.6 per cent for 201112 ending in March. The government this month said it expected GDP to grow by 7.25 to 7.75 per cent this year, down sharply from a February estimate of 9 percent.