Industry welcomes rate cut by RBI, says will boost economic growth

The Reserve Bank of India (RBI)'s announcement to further reduce the Repo rate by 25 BPS and also the Cash Reserve Ratio (CRR) by 0.25% has been welcomed by industry, which termed the decision as a step towards easing out financial stress in the markets and also reversing the anaemic industrial growth observed over the last one year.

In the third quarter monetary review today the apex bank has announced reduction of  25 bps in repo rate from 8% to 7.75%, reduction of bank rate to 8.75% and reduction of CRR by further 25 bps to 4%.

Welcoming RBI’s move to go for rate cut, Naina Lal Kidwai, President of FICCI, said, “In fact the high borrowings under the LAF window seen in the recent past clearly reflected the tight liquidity situation. Release of Rs 18000 crores with CRR cut of 25 basis points will help in easing the funds flow situation. In the recently conducted FICCI Economic Outlook Survey participants also advocated the need to cut the repo immediately by 25 basis points and reduction by 75 basis points to 100bps in repo rate through FY14 if the economic growth has to be brought back to the higher growth trajectory.”

Vouching that RBI’s policy decision will boost the real estate market sentiment and send out positive signals to global investors, Shobhit Agarwal, Managing Director – Capital Markets of Jones Lang LaSalle India, a leading real estate research firm, said, “RBI has shown commitment to improving liquidity in a cash-strapped economy by reducing the CRR further in this policy coupled with reduction in repo and bank rates.” 

“Liquidity is expected significantly improve in the economy on the back of the reduced repo rate, CRR and bank rate.  Consequently, there should be a revival in investment and growth – including in the real estate space.  Industrial activity, which has been sluggish last year, should bounce back in the medium term,” he further added.  

However, there is one voice which sounded less esteem over the RBI’s policy decision. ASSOCHAM, the leading industry body, said, if RBI reduced the rate to 25 bps, it will be nothing but a ‘baby step’ which is quite inadequate to revive the growth momentum in the economy.

"It is time the Reserve Bank of India went in for a bold move and slashed the REPO rate by at least 100 basis points. Only then, the prolonged high interest rate cycle will be broken and the growth would get some breathing space for revival. The 25 bps cut will only be a symbolic and would not make much of a difference excepting, maybe a short-lived rally in the stock market”, ASSOCHAM President Rajkumar N Dhoot said on the eve of the RBI coming out with a credit policy review.  

Sanjay Dutt – Executive Managing Director, South Asia, Cushman & Wakefield, the commercial real estate brokers and consultants, feels that RBI’s move is expected to release Rs 18,000 cr to various financial institutions and thereby boosting the economic growth.,

“RBI’s populist decision to further reduce the Repo rate by 25 BPS at 7.75% and also the Cash Reserve Ratio (CRR) by 0.25% to 4% is a step towards easing out financial stress in the financial markets and increasing their liquidity. In the past, the Central Bank has been keen on keeping inflationary conditions in control which had led to stringent moves from RBI over the last 8 quarters.” 

RBI has also predicted that inflationary trend is expected to remain ‘rangebound’ therefore moderate infusion of cash in the system would be a positive move. This may be also help in creating a positive outlook for India amongst global investors who have been worried about depleting cash flow in the economy and thus may be setting the background for critical investment decisions in the upcoming economic policies and union budget, he said. 

S. Sridhar, Advisor, RICS South Asia, said, “RBI's action was on expected lines. The repo rate reduction will facilitate banks and housing finance companies to reduce home loan rates marginally which will benefit consumers. Of course, each lender will have to take a view based on respective ALM and margin position. However, one is not sanguine of increased funds flow to the real estate companies as the issue is not merely one of liquidity but portfolio quality related. Overall, a sentiment-lifter.“

Backed by relaxation in Repo and CRR in two consecutive quarters and contained inflation, institutions are expected to offer better rate of interest on loans, and may also increase their deployment in infrastructure and development projects. Meanwhile, the RBI has already allowed established real estate developers and housing finance companies to raise up to USD 1 billion through ECBs, helping entities to raise cheaper funds and tide over their liquidity issues, propelling the real estate sector on the whole,” Sanjay further added.