India Inc expects the RBI to ensure policy repo rate cut decisions will translate into banks reducing their interest rates. They have also supported RBI Governor Raghuram Rajan’s decision to maintain the status quo on interest rates in the fifth bi-monthly Monetary Policy Statement of the central bank announced on Tuesday.
Justifying RBI’s stance to keep rates unchanged keeping in mind the evolving economic situation, Venugopal Dhoot, chairman Videocon Group told The Hindu , “Just about half of the policy repo rate reduction of 125 basis points has been transmitted by the banks till this date. A lower interest rate regime will fortify these efforts and support revival of private investments.”
Echoing similar feelings, Gagan Banga, VC & MD, India Bulls Housing Finance Limited said, “The RBI has set the direction and is rightly holding on to its ammunition in the light of large global uncertainties. The accommodative stance will give a lot of comfort to markets over medium term. Interest trajectory is headed down and in 12 months effective rates in the market will be at least 50-60 basis points lower.”
Shishir Baijal, CMD Knight Frank India, does not see any dampening of spirits in the real estate sector as a total of 125 basis points cut in the rates is already done across the year and now much depends on how banks transmit the benefit to home buyers.
Chandrajit Banerjee, director general of CII is happy with RBI’s intention to maintain an accommodative policy stance. “The focus has now shifted to the transmission of lower policy rates to banks’ lending rates. Banks need to be ready to finance a pick-up in credit growth and the RBI should ensure that high level of non-performing assets do not constrain banks from financing higher growth,” said Mr Banerjee.
IMC president Dilip Piramal believes that signs of recovery in the GDP, from a growth rate of 7% in the previous quarter (April-June), have reinforced RBI’s case to hold on to the existing rates.
“The CPI, on account of rising food prices, especially of pulses, rose to a four month high of 5% in October 2015. The RBI seems to be taking into account the inflationary impact of a falling rupee, despite falling crude oil and commodity prices,” said Mr Piramal.
Motilal Oswal, CMD, Motilal Oswal Financial Services, feels the RBI pauses to watch key developments. “An opportunity to resume the rate cut would, however, be provided by February 16 as by then the outlook for Jan 16 inflation would be clear and financial markets are expected to stabilise.
Meanwhile, adequate provision of liquidity could be the focus of RBI’s policy to stabilise bond rates. “The continued focus on transmission is a welcome step that would make the accommodative stance effective,” said Mr Oswal.
