Though India Inc would have liked at least a 50 basis points cut in the policy interest rates by the RBI, the measures announced to inject enough liquidity into the system should enable banks to cut the lending rates, said Mr. Sunil Kanoria, President, ASSOCHAM.
“The transmission in the interest rates at the ground level should factor in not only today’s reduction in the repo rate but also the new lending norms being effected by the regulator, besides adequate liquidity injection by the RBI should ease concerns of the banks over falling growth in deposits,” said Mr. Kanoria.
However, the ASSOCHAM chief said that given the kind of stress in large sectors of the economy, particularly in the manufacturing, construction, infrastructure, the policy interest rates cut should have been bolder.
“Eventually, lower interest rates would have an all-round positive impact in terms of reducing the non-performing assets, increased investment, aggregate domestic demand and overall vibrancy in the system. At this point it is very important to revive the domestic investment cycle,” said Mr. Kanoria. “Lower food inflation should have encouraged the RBI to be more accommodative.”
Sharing the concerns of RBI over the impact of 7th Pay Commission on inflation, the ASSOCHAM president said, “The pay commission would not only lead to higher inflation but would have an adverse impact on the fiscal situation of the country.”
On the other hand, the ASSOCHAM President lauded the RBI Governor Dr. Raghuram Rajan for continuing with a number of reforms with regard to new banking licences and cyber risk mitigation initiatives. Given the growing number of asset classes, he felt that it is imperative to have differentiated banks catering to niche groups.
The ASSOCHAM President expected the Central Bank to be more accommodative going forward, with at least a 25 bps cut in repo rate post-monsoon.
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