P Jayarama Bhat, Managing Director and Chief Executive Officer of Karnataka Bank Ltd, has said that the proactive move of the monetary policy committee (MPC) will help in revival of credit to productive sectors.
Reacting to the fourth bi-monthly Monetary Policy Statement 2016-17 of the Reserve Bank of India on Tuesday, he said that a 25 bps cut in repo rate was as per the expectations of the market.
Since high food inflation was driven by the prices of perishables, especially vegetables, it is also expected that the food inflation will cool significantly with favourable monsoon this year and increase in crop area leading to higher production of most crops.
“The proactive move of providing funds at a cheaper rate by signalling a reduction in interest rates will help in revival of credit to productive sectors, boost liquidity, improve sentiments and will also result in economy to recover at a faster pace,” he said.
However, the expected increase in global oil prices following the recent OPEC decision on production cuts, the impact of Seventh Pay Commission, along with uncertainties in the international economy with US Presidential elections, Brexit, European banking woes, slower global growth projections, possible interest rate hikes by the US Federal Reserve etc., could put pressure on inflation in coming months. Future rate cuts and liquidity easing measures will be more data dependent, Bhat said.