India Inc Cheers Rate Cut, Urges Banks to Follow Suit

New Delhi: Commending the new rate-setting panel'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 cut to a six-year low of 6.25 per cent in a unanimous decision by the newly constituted Monetary Policy Committee (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. "Tuesday's rate cut will boost sentiment and contribute towards reinvigorating growth impulses in the infrastructure, construction and manufacturing sectors. Backed by a healthy set of domestic macros and sustained global deflation, I expect 75 bps further easing in the coming months,” Rana Kapoor, MD & CEO, YES BANK, said.

The cut, first in six months, came amidst 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 Make in India, rapid infrastructure creation and affordable power.

The six-member MPC, headed by Patel, reduced repo rate or the short term rate at which central bank 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.

“With the pro-growth stance of the RBI, it gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee rates softening further,” said George Alexander Muthoot, Managing Director, Muthoot Finance.

"We believe the rate cut was very much required for the economy, and if inflation data supports there could be another cut of 25 bps towards the end of the financial year," Angel Broking CMD Dinesh Thakkar said.