RBI should have cut repo by 50 bps to boost growth: Industry

Welcoming the RBI’s move to slash key interest rate by 0.25 per cent, India Inc today said it will improve the cost of credit, even as it pointed out that the time was opportune for the apex bank to go for a bolder 50 basis points cut to augment growth.

“The rate cut could have been higher in the current economic conditions which would have had a stronger impact on business sentiment and spurred investment in a big way.

“Factors such as soft global commodity prices, expectations of a normal monsoon, cut in small savings rate and the government delivering on fiscal prudence in the Budget have made it the right time for the RBI to take monetary policy action and lean more towards growth,” CII Director General Chandrajit Banerjee said.

Reserve Bank today cut the key interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead.

“Given the kind of stress in large sectors of the economy, particularly in manufacturing, construction and infrastructure, the policy interest rate cut should have been bolder,” Assocham President Sunil Kanoria said.

Given weak private investment in the face of low capacity utilisation, a reduction in the policy rate by 0.25 per cent will help strengthen growth, RBI Governor Raghuram Rajan said in the first bi-monthly monetary policy review for the 2016-17 fiscal, which began on April 1.

PHD Chamber President Mahesh Gupta said repo rate must not be more than 6 per cent to induce demand and refuel growth.

“Therefore, an aggressive move to cut repo rate is needed at this juncture to facilitate industrial growth. Time is most opportune to strengthen the sentiments of industry and facilitated to grow in double digits in the coming times,” Gupta said.

Rajan also took a host of measures on the liquidity front, starting with the narrowing of policy rate corridor to 0.50 per cent from the earlier 1 percentage point, which resulted in the reverse repo rate — at which banks can park excess funds with the RBI — being reset at 6 per cent.

“The steps announced to ease liquidity should help in effective transmission of lending rates by banks. Banks have enough room to pare lending rates owing to recent reduction in small savings interest rate up to 1.3 per cent and introduction of marginal cost of funds based lending rate (MCLR).

“We now look forward to banks taking the lead in supporting the investment cycle and improving economic growth,” Ficci President Harshavardhan Neotia said.

RBI also retained its GDP growth forecast at 7.6 per cent, on the assumption of a normal monsoon and a boost to consumption through the implementation of the Seventh Pay panel recommendations.

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