India Inc expects RBI to cut interest rate

India Inc expects RBI to cut interest rate New Delhi: Faced with declining growth, the Reserve Bank is likely to cut repo rate and Cash Reserve Ratio (CRR) by about 0.25 percent each to spur demand and boost industrial output.

The possibility of rate cut at the annual credit policy to be unveiled by RBI Governor D Subbarao on May 3 has gone up with the inflation falling to 5.96 percent level, the lowest in three years.

India Inc has been demanding a rate cut to promote growth which fell to decade's low of 5 percent in 2012-13. The economic growth was 6.2 percent in 2011-12.

"We expect the central bank to cut rates by 0.50 percent by mid-2013," research firm Barclays said, adding that the RBI is likely to ease the policy rate by 0.25 percent in its May 3 meeting.
The central bank has already reduced key interest rate by 1 percent during 2012-13 and pressure is mounting on it to further cut rates in the annual policy for the current fiscal.

"...The recent deceleration in WPI inflation and fall in global commodity prices should allow the RBI to front load its rate action. We continue to expect 1 percent rate reduction in FY' 14, including 0.5 percent in May policy," CII Director General Chandrajit Banerjee said.

Industry body Ficci said it expected cut of 0.50 percent in short-term lending, or repo rate over the next quarter.

This is due to fall in prices of crude oil and gold recently which, it said, has helped narrow down the current account deficit (CAD) and hence provides room for a greater rate cut.

"This should provide the RBI greater room for further rate cuts. We do hope to see another 0.5 percent cut over the next quarter as indicated by respondents of several Ficci surveys conducted in recent past," President Naina Lal Kidwai said.

Ficci also expects the RBI to provide liquidity support by reducing CRR -- the portion of deposits banks need to park with RBI.

Assocham President Rajkumar N Dhoot said: "The central bank must cut interest rates aggressively, or else the industry will witness more non-performing assets hitting the overall economic sentiment. Banks will also take a huge collateral damage (otherwise)".

PTI