JOIN USGovt welcomes rate cut, industry wants more
The government on Wednesday welcomed the 25 basis point cut in policy interest rate by the Reserve Bank of India.
Economic Affairs Secretary Subhash Chandra Garg said, “It is an important step necessary to converge toward the appropriate real monetary conditions for sustained growth consistent with India’s potential and for stable, moderate inflation”.
The interest rates were the lowest since 2010 as the repo rate, the rate at which the Reserve Bank of India lends to the banks, was brought down to 6% from 6.25%.
The rate cut has come after a 10-month pause but the North Block had raised the pitch for a cut for a long time and last month Prime Minister Narendra Modi’s Economic Adviser Arvind Subramanian had even urged policy makers to reflect “very very carefully” on record low inflation in June and soft industrial output.
Industry bodies too welcomed the cut although demanded for a steeper one. “The 25 bps cut in repo rate is a welcome move. The current situation, however, warranted a steeper cut of 50 bps in the repo rate. The private investment cycle remains weak and the reduction in the rate will be an investment sentiment booster,” Ficci said.
According to Ficci’s latest Business Confidence Survey findings, companies are still operating at sub-optimal capacities and the demand conditions also remain a concern for businesses. “Normal monsoon and forthcoming festive season is expected to aid rural consumption and a further decline in lending rates will send a positive signal to investors as well as consumers,” it added.
“Cut in repo rate will not only reduce the costs of doing business but also enhance our exporters’ competitiveness in the international markets,” according to PHD Chamber of Commerce.
“The 25 bps repo rate cut was on expected lines. The market has largely discounted this action and focus would now shift to global events and how they unfold going forward. The CPI target has been maintained for FY 2018. If CPI continues its softening trend, we believe case for an additional 25 bps remains live before end FY 18. Duration investors are advised to remain invested with the funds. Incremental allocation can be made into credit accrual funds and short term funds,” Kotak Mutual Fund said.