RBI's rate cuts to propel growth, spike demand: India Inc
Reeling under slowdown, India Inc on Tuesday hailed Reserve Bank's move to reduce repo rate and CRR by a quarter per cent, saying it will spur growth and ease the prevailing tight liquidity condition.
New Delhi: Hailing RBI's pruning of the key interest rates, India Inc Tuesday said the move will propel economic growth by easing fund flow and spiking the blunted consumption and investment demand.
While all anticipated a cut in repo rates, particularly after the apex bank's hawkish monetary outlook last evening, the move to infuse fund with 25 basis points cut in cash reserve ratio into the banking system took the industry by a pleasant surprise.
"This will hopefully help in reversing anaemic industrial growth observed over the last year... The release of Rs 18,000 crore with CRR cut will help in easing funds flow situation," Ficci President Naina Lal Kidwai said.
Enthralled with the cuts, hopes also started taking wings with some predicting it would spike demand and thus provide a much-needed boost to economic growth. Others suggested that it will lead to lower interest costs and improve bottomlines.
CII's Director General Chandrajit Banerjee said the weak consumption and investment demand was derailing the momentum of economic growth and today's announcement would help improve the sentiments of both consumers and investors.
The association's President Adi Godrej said the industry appreciates the signal from the RBI that the central bank is ready to promote growth in addition to anchoring inflationary expectations.
Assocham President R N Dhoot said: "The reduction is a step in the right direction. However, the system has to take this in the true spirit and benefits have to be passed on to the end users."
JSW Steel's Joint Managing Director and CFO Seshagiri Rao said: "It was much needed given that GDP growth is moderating and industrial production is decelerating month after month. The rate cut is an encouraging move when high interest rates were having negative impact on the country's economic growth."
PwC India Director Shinjini Kumar said the RBI move is consistence with the "growth push" that the economy needs, but added that the worries due to current account were very real.
"In line with expectations, the RBI cut the repo rate by 25 bps to 7.75 percent, but once again maintained its trend of surprising the markets by cutting the CRR by 25 bps to four percent," said Citi Research.
Apparel Export Promotion Council's Chairman A Sakthivel said: "The tight liquidity condition which was prevailing since long will surely ease out. It will, in turn, boost our economy and robust the structural deficit in the system by infusing the permanent primary liquidity in the system."
Credit rating agency ICRA's Managing Director and CEO Naresh Takkar said the RBI stances are supportive of economic growth and would benefit interest-rate sensitive sectors such as automobiles, housing and the MSME segment.
Crisil said the reduction in rates would enable banks to lower lending rates and improve transmission of monetary policy.
"As inflationary expectations adjust downward, banks will have greater flexibility in reducing deposit rates, thereby lowering their cost of funds. This will create further space for a reduction in lending rates in coming months," said Crisil Chief Economist Dharmakirti Joshi.
Federation of Indian Export Organisation (FIEO) Chief M Rafeeque Ahmed said the combined impact of repo rate and CRR cuts might see some upsurge in bank credit to industry which had decelerated.
Arun Singh, economist with Dun & Bradstreet, said the RBI's shift in monetary policy stance to arrest loss of growth momentum coupled with the government's reforms measures was expected to further boost the sentiment of the business community and support investment activity in the economy.
Fitch Group firm India Ratings and Research said the RBI move would have positive impact of rate sensitive sectors such as housing, consumer goods and automobiles.