India Inc welcomes RBI move to cut repo rate

Mumbai, Jan 15:

India Inc welcomed the reduction in key interest rates by the apex bank Thursday as a pleasant surprise that will uplift investor sentiment in the current sluggish economy.

The much awaited reduction in key interest rates by RBI Governor Raghuram Rajan fulfilled his promise made at the last monetary policy review to cut key lending rates as soon as inflation eases.

The move came a day after wholesale inflation data for December showed it had fallen to 0.11 percent in December 2014 from 6.40 percent in the corresponding month of 2013.

Lauding the RBI’s move, Federation of Indian Chambers of Commerce and Industry’s (FICCI) president Jyotsna Suri pointed out that the cost of finance was an important factor for giving boost to the industrial sector, which has been under stress for a long time now.

“This measure will help in improving the investor sentiment. FICCI hopes that this will be the beginning of further cuts in the policy rate by the central bank, and will enable its transmission into lower lending rates by the banks,” Suri said.

Commenting on the policy announcement made by the RBI to cut 25 basis points (BP) in repo rate, Confederation of Indian Industry (CII) director general Chandrajit Banerjee said the rate cut would propel investment demand, spur spending in rate-sensitive consumer durables and give a fillip to construction activity.

“Going forward, CII hopes that while maintaining a delicate balance between growth and inflation, the RBI would shift its stance in favour of growth, given that the trend in inflation is clearly subdued,” Banerjee said.

The Associated Chambers of Commerce and Industry of India (Assocham) also applauded the RBI decision and observed that the move had correctly assessed the industry’s need.

“The RBI view that any further cut in rate would depend upon further moderation of food inflation and current account deficit is well acknowledged. This move will bring cheer for industry, economy as whole and for the common man,” said Rana Kapoor, Assocham president.

According to the PHD Chamber of Commerce and Industry, the rate cut will play a major role in the revival of industrial activity.

The industry body’s president Alok B. Shriram said industrial activity should be at utmost priority and implementation of recent reform measures to ease doing business in India are expected to re-capture the growth momentum.

Major lenders like ICICI and HDFC Bank too welcomed the ‘out-of-turn’ move by the RBI.

“Together with the various initiatives being taken by the government, the rate cut would strengthen the positive momentum in the economy by lowering borrowing costs as the lower rate regime reflects in bank funding costs over time,” said Chanda Kochhar, managing director and chief executive, ICICI Bank.

“We need to continue to address the issues impeding output and investment in key sectors to leverage this momentum for growth.”

The HDFC Bank said the RBI surprise move has set into motion a much awaited turn in the monetary policy cycle, which was much anticipated.

“The likely trigger for this decision would have been the shallower than anticipated upturn in the CPI inflation reading for December. The continued weakness in pricing power, reflected by the December WPI inflation print would have also added to the pressure on the RBI to act sooner rather than later,” said Jyotinder Kaur, principal economist, HDFC Bank.

The Kotak Mahindra Old Mutual Life Insurance said RBI has re-iterated that once the stance changes, subsequent move will be consistent to the direction.

“We believe RBI will ease further by 25 BP by March 2015. RBI also has data on inflation expectations survey which confirms the drop to single-digit future inflation expectations,” said Kunal Shah, fund manager, debt at Kotak Mahindra Old Mutual Life Insurance.

“We believe that if global commodity prices remain soft and fiscal consolidation continues, RBI can cut rates by another 50-75 BP from the current level in calendar year 2015. (IANS)