The Reserve Bank of India cut benchmark interest rate by 0.25 percent to 6.25 percent on expectation of inflation staying within its target range, a move that may translate into lower monthly installments for home and other loans.
The central bank also changed its monetary policy stance to ‘neutral’ from the earlier ‘calibrated tightening’, signaling further softening on its approach towards interest rates.
In the first policy review under Governor Shaktikanta Das, the six-member Monetary Policy Committee voted 4:2 in favor of the rate cut, while the decision to change policy stance was unanimous.
The RBI cut its estimates on headline inflation – which cooled off to an 18-month low of 2.2 percent in December – for the next year, and expects the number to come at 2.8 percent in March quarter, 3.2-3.4 percent in first half of next fiscal and 3.9 percent in third quarter of FY20.
Industry leaders including Vijay Mansukani, MD, Mirc Electronics Ltd (Onida), Sanjay D Palve, CEO, Religare Finvest Ltd and many other industrialist believe that reduction in repo rate and CRR would help in reviving the investment cycle in the country and will also boost consumption and support growth and this will surely improve the liquidity conditions facing by the economy.
Vijay Mansukani, MD, Mirc Electronics Ltd. (Onida) said, “Repo Rate cut of 25 bps is quite an encouraging move by RBI though it was mostly on expected lines. This should increase the consumption positively and also overall sentiments of the people. Positive sentiment on the economy generally encourages people to spend on necessities like televisions, air conditioners and washing machines etc.”
“This will surely improve the liquidity conditions facing by the economy. Moreover, a downward revision in inflation targets for Q4 and next year suggest a recovery in overall economic growth. We believe that these steps will certainly help in picking-up overall consumer durables demand. This also an indication that FY20 would be low-interest rate regime if inflation continues to be well within 4 percent”.
“The repo rate cut of 25 bps basis downward trend in inflation targets for this quarter and next few quarters are certainly the much-needed moves by RBI. These steps will improve liquidity in the economy and thus help in improving consumption by making cheap finance available to end consumer. This will also boost investments in service as well as core sectors in the economy”.
“Regarding the ease in norms for maintaining risk weights on bank lending to NBFCs, this is again a welcome move by RBI. The reduction in risk weight will free up the equity capital that allows banks to lend more to stronger NBFCs. Thus, this will help banks to improve their balance sheet and capital ratios, as well as NBFC which are better managed, can have access to liquidity now”, says Sanjay D Palve, CEO, Religare Finvest Ltd and MD, Religare Housing Development Finance Corporation Ltd.―The Asian Age