New Delhi: Indian Industry on Tuesday rejoiced at the interest rates cut by the Reserve Bank of India for the first time in three years by an unexpected and sharp 50 basis points, with top honchos saying the decision would boost business sentiment and revive investment and growth.
“It is a very good step because high interest rates were having negative impact on the country’s economic growth,” said Adi Godrej, chairman, Godrej Group.
“The cycle of repo cut has started and we may see more cuts in future,” Godrej, president-designate of the Confederation of Indian Industry (CII), told reporters.
The RBI in its annual monetary policy for 2012-13 cut the repurchase rate by 50 basis points to 8 per cent, which will automatically see the reverse repurchase rate also drop to 7 per cent from 7.5 per cent.
“I am delighted,” said Bajaj Auto Chairman Rahul Bajaj.
Bajaj said the move would help boost investments and improve economic growth.
“While the cut in policy rates by RBI is an encouraging move, we also need the government to push reforms as this would improve business sentiment and spur investments in the economy,” said R V Kanoria, president, Federation of Indian Chambers of Commerce and Industry (FICCI).
Kanoria hoped that the government would take positive measures that would result in increased liquidity and not crowd out private investment as a result of high government borrowings.
“The cut in repo rate by 50 basis points is a welcome move, which was much needed given that the GDP growth is moderating and IIP (Index of Industrial Production) growth is declining,” Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said about the RBI’s annual monetary policy.
“The repo rate cut will provide the boost to investment as well as send a strong signal that turning around growth is of pivotal importance,” Banerjee said.
The repurchase rate is the interest the central bank levies on short-term borrowings by commercial banks. The reverse repurchase rate is the interest on short-term lending. A cut in these rates reduces the cost of accessing funds for lending institutions.
A cut in these rates also eases money supply in the system by making it more attractive for commercial banks not to park their funds with the Reserve Bank of India in the form of government securities, and instead lend it for commercial purposes.
“This has set the stage for cheaper lending costs and created an investment climate which could even possibly reverse inflationary pressures,” said D.S. Rawat, secretary general, of Associated Chambers of Commerce and Industry (Assocham).
“High interest rates have been discouraging fresh investments and industrial production for nearly two years now. The RBI has acted vigorously to reverse the slowdown,” Rawat said.
“This development will have a positive impact across the economy and particularly in the real-estate industry. Not only will the cost of borrowing rationalize, this reduction will also provide an impetus to growth and enhance business-confidence,” said Ajay Chandra, managing director, Unitech.