India Inc seeks immediate transmission of rate cut

The Dollar Business Bureau

Welcoming the RBI’s decision to reduce its lending rate for banks by 0.5%, various trade and industry bodies have asked banks to pass on the benefit to borrowers so as to improve cash flow in the economy. The Reserve Bank of India (RBI) in its fourth bi-monthly monetary policy review on Tuesday reduced the repo rate from 7.25% to 6.75%. The Associated Chambers of Commerce and Industry of India (ASSOCHAM) said the cut in interest rates needs to act as a demand push at the consumer level and should help revive investment cycle, especially in the private sector. “The trouble has been aggravated by a high level of debt in the private sector which makes it onerous for the companies to service the debt. Rather than a small cut, at least a 50 bps reduction in repo, with a clear message to the banks to pass on the same, should be pushed,” ASSOCHAM Secretary General D S Rawat said. After the announcement of the previous monetary review on August 4 when the central bank had kept the key rates unchanged, the industry bodies had been putting pressure for rate reduction and hoped for a cut of up to 25 basis points. Finance Minister Arun Jaitely extended government’s support in its early transmission and said, “The government will work to facilitate this transmission, including by reviewing the framework of small savings. The rate cut, combined with actions taken and planned by the government, will help boost confidence and investment, and help realise the economy’s medium-term potential growth rate.” Federation of Indian Export Organisations (FIEO) pointed out that an immediate transmission of interest rate cut for all export sectors would help exports get credit at a competitive rate so as to improve their competitiveness which has recently crumbled due to steep depreciation of currencies. “This would stimulate credit off-take which had fallen to levels of 4.8% from 10.2% in the corresponding period last year and also reflect on IIP (Index of Industrial Production) data which had shown traction (4.2%), provided policy transmission flows down to the Industry and banks comply with the same,” FIEO’s President S C Ralhan said.  Expressing similar views, Federation of Indian Chambers of Commerce and Industry (FICCI) President Jyotsna Suri said that a faster transmission of rate cut by banks “would give a boost to the much needed investment and consumption demand in the economy". PHD Chamber of Commerce and Industry President Alok B. Shriram said, “The much awaited move would stimulate demand and boost manufacturing sector’s growth. To spur industrial growth which is merely growing at a rate of 3.5% in April-July 2015-16 and enhance our exporters’ competitiveness in the international markets, conducive policy environment becomes crucial.” Shriram said that the rate cut will revive demand in rural areas as the cut would help the rural people in fulfilling their needs in terms of buying consumer durables.