A cut in interest rates is expected in the upcoming credit policy, but the need of the hour is measures to help the industry tide over the economic crisis, contain high inflation and put the economy back on track, say experts. The Reserve Bank of India (RBI) will announce its mid-term credit policy review on June 18.
"We are expecting RBI to cut rates by, at least, a quarter to half-a-percentage, which is much needed. We don't expect any miracles though we are hoping for some policy announcements," Alex Mathews, head (research), Geojit BNP Paribas Financial Services, told Mail Today.
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"The central bank should come up with certain policies to ease off monetary concerns. There should be definite policies on currency and bond sales," Mathews added. Most economists are expecting RBI to reduce key policy rates - repo and reverse repo - by at least 25 basis points (bps) but not a cut in cash reserve ratio (CRR).
Repo is the rate at which RBI lends to banks, reverse repo is the rate at which it borrows from banks and CRR is the percentage of total deposits banks have to park with the apex bank.
The State Bank of India (SBI), the country's largest bank, is expecting a CRR cut of about one per cent, its chairman Pratip Chaudhuri said.
"We believe that RBI will come up with some policies for certain sectors such as real estate, power and infrastructure which will enable easier borrowings. The real estate sector, which contributes at least two per cent to the GDP, is the one that needs low-cost borrowings," Pradeep Jain, chairman, Parsvnath Developers, said. "However, RBI can't alone help in bringing changes. It should be supported by the government," Jain added.
The central bank had last reviewed its policy on April 17 and much has happened since then. The index of industrial production (IPP) for the month of April crawled to a shocking 0.1 per cent. The GDP growth rate slumped in the January-March quarter
to a nine-year low of 5.3 per cent due to fall in the manufacturing sector's output.
The high inflation-average headline inflation at 8.8 per cent-and the falling rupee are other concerns of the industry. "If RBI is serious about supporting growth, then rates will have to be cut much more for the same level of policy transmission to occur…. Moreover, if RBI is serious about lowering the cost of funding and supporting growth, then it will have to deliver more repo rate cuts to ensure the same level of policy transmission," a report by research firm Nomura said. "With the rate cycle now easing, there are fears that cuts in the repo rate will not translate into lower lending rates as liquidity is tight and likely to remain so," it added.
Courtesy: Mail Today