India Inc was expecting a steeper rate cut from the Reserve Bank today to spur investment and growth. However, eminent banker Deepak Parekh said the RBI’s decision to slash benchmark lending rate by 25 basis points is a good move for the economy. Commenting on the third bi-monthly monetary policy, industry chamber CII said the move will give a fillip to growth, especially at a time of benign core inflation print and tepid private investment. “Having said so, CII feels that a steeper cut in interest rate would have been more in consonance with market realities,” it said in a statement Echoing the sentiment, industry body Ficci said the current situation “warranted a steeper cut of 50 bps” as the private investment cycle remains weak and the reduction in the rate will be an investment sentiment booster. Assocham said that even though the 25 bps cut “may not make much of a difference” to the debt servicing burden of the borrowers, especially the over-leveraged corporates, “it certainly improves the sentiment”. Harsh Pati Singhania, Vice Chairman and Managing Director of JK Paper, termed the RBI’s decision as “too little”. “While I believe RBI could have been more aggressive, the 25 basis point cut will boost consumer sentiment specially for discretionary items like automobiles and white goods,” he said.
Motilal Oswal, CMD, Motilal Oswal Financial Services, said the RBI’s decision is an “almost a copy book event where street expected 25 bps and RBI Governor delivered 25 bps cut on the policy front”. After a 10-month pause, the Reserve Bank cut repo rate by 0.25 per cent citing reduction in inflation risk, a move that will lower interest on home, auto and corporate loans. The repo rate, at which RBI lends to banks, is now down to 6 per cent, the lowest in more than six-and-a-half years.
Economist with private sector lender RBL Bank, Rajni Thakur, said growth inflation dynamics remain muddled with a number of short-term disruptions and efficacy of lower rates in kick-starting investment cycle is questionable. Industry body PHDCI opined that reduction in the key lending rate will not only reduce the costs of doing business but also enhance exporters’ competitiveness in the international market.
George Alexander Muthoot, MD, Muthoot Finance, said with acceptable inflation levels, the focus is clearly towards driving growth.