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Tuesday, October 4, 2016

India Inc Cheers RBI Repo Rate Cut, Urges Banks To Follow Suit

New Delhi: Commending the newly-formed Monetary Policy Committee's move to slash key policy rate by 0.25 per cent, India Inc on Tuesday said it will boost sentiment and reinvigorate growth impulses and hoped that banks will transmit the benefit to borrowers.

In the first monetary policy review under new RBI Governor Urjit Patel, the interest rate was earlier on Tuesday cut to a six-year low of 6.25 per cent in a unanimous decision by the new rate-setting panel (MPC).

"The cost of capital has to be more competitive to drive investments. Businesses need to see an urgent revival in growth. Also, a moderate interest rate regime will lead to an uptick in interest sensitive sectors such as consumer durables, automobiles and housing," Ficci president Harshvardhan Neotia said.

"The maiden policy decision taken by RBI's MPC is completely justified by the ongoing disinflation in the economy. Today's rate cut will boost sentiment and contribute towards reinvigorating growth impulses in the infrastructure, construction & manufacturing sectors."

"Backed by a healthy set of domestic macros and sustained global deflation, I expect 75 bps further easing in the coming months," said Rana Kapoor, MD and CEO of YES Bank.

The cut, first in six months, came amidst a big clamour for easing rates especially after the departure of former Governor Raghuram Rajan, who was often accused of stifling growth by keeping rates too high.

"At the anvil of the busy credit season when the demand for bank credit is anticipated to go up, the RBI intervention to reduce interest rates and other welcome liquidity supporting measures would enable banks to transmit the cut to borrowers and thereby support the growth cycle," CII director general Chandrajit Banerjee said.

In a Facebook post, Union Minister for Power, Coal, New & Renewable Energy and Mines Piyush Goyal said the repo rate cut will ensure rapid growth and give a boost to the government's Make in India drive, rapid infrastructure creation and affordable power.

The six-member Monetary policy Committee, headed by Mr Patel, reduced repo rate - the short-term rate at which the RBI lends to banks - to 6.25 per cent. Consequently, the reverse repo rate has also come down by a similar percentage point to 5.75 per cent.

The move will lead to reduction in lending rates by banks, leading to lower EMI for housing, car loan and corporate borrowers.

"The industry expects a lot of value addition from the MPC and possibly another rate cut before March 2017, while expecting the real transmission of the lower rates by the banks," Assocham secretary general D S Rawat said.

"The rate cut should spur growth and the corporate sector should see it as an encouraging move to foster investment. However, the speed of transmission of this rate cut would be an important determinant," president of the Indian Merchants Chamber Deepak Premnarayen said.

Sterlite Power CEO Pratik Agarwal said: "It's clear that India is determined to maintain a 1.5-2 per cent real rate of interest. This will satisfy the urgent need for growth and also encourage savings at the same time."

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