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Mumbai - India Inc. has welcomed the Reserve Bank of India's move to slash benchmark interest rates by 50 basis points (bps), but some corporate leaders were also left disappointed, saying that it would not lead to sufficient credit offtake.
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After market hours, the apex bank slashed both its short-term lending rate or repo rate and the reverse repo rate (the rate at which the central bank absorbs excess cash from the system) by 50 bps each, effectively bringing down the key interest rates to 5 percent and 3.5 percent respectively.
This is the fifth monetary stimulus from RBI since mid-September 2008 to stimulate consumer spending, in addition to three fiscal packages announced by the government since December. Through the gradual reduction in key policy ratios and rates, RBI has injected about Rs.4,00,000 crore ($80 billion) into the system so far.
The latest reduction in the reverse repo rate is significant as it lowers the incentive for banks to park their surplus cash with the RBI since the money will yield lower returns. Banks will, therefore, look to lend these funds to the retail and corporate sector, which are hard-pressed for money, industry leaders said.
Industry lobby groups Confederation of Indian Industry (CII), Federation of Indian Chambers of Commerce and Industry (FICCI) and the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said RBI's move to slash rates is a signal to banks to cut interest rates for both corporates and individual customers to boost spending.
"We welcome the steps taken to reduce interest rates and increase availability of credit," said K.V. Kamath, president, CII.
Don't expect the expected from Dibakar Banerjee.
A top U.S. official on Monday urged India and other large emerging economies to ...
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