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Banks must transmit rate cut to boost investment: Industry

With the RBI slashing the repo rate by 35 basis points, India Inc today said its swift and full transmission by banks in the form of lower lending rates will be crucial to lift consumption and investment in the economy.

The RBI’s Monetary Policy Committee today cut the interest rate by 35 basis points — the fourth successive reduction — to a nine-year-low level, in an attempt to boost an economy growing at its slowest pace in nearly five years.

The central bank reduced its growth projection for the Indian economy to 6.9% for the current financial year, from 7% forecast in June, due to a slowdown in demand and investments.
“With today’s (Wednesday’s) cut, the RBI has lowered the policy rate (repo) by 110 basis points in the current calendar year. The central bank has also kept liquidity in the surplus mode, and it is now critical for banks to move fast and transmit this ease in policy rate in the form of lower lending rates.

“Unless the transmission is swift and full, we may not see a change in the consumption and investment trajectory,” Ficci president Sandip Somany said.

PHD Chamber of Commerce and Industry president Rajeev Talwar said the repo rate cut will help rejuvenate consumption and increase competitiveness of the producers with reduced cost of capital.

“However, at this juncture, transmission of the cut in repo rate with an effective reduction in lending rates by the banking sector would be crucial to materialise the benefits at the ground level,” said Talwar.

“Going ahead, we expect repo rate to come down to 5% in the coming quarters for enhanced liquidity and availability of credit to the industry especially to the MSMEs with a significant reduction in the cost of capital,” he added.

According to the Indian Chamber of Commerce, reduction in the repo rate will transmit to cheaper loans which will boost the economy at large, especially sectors such as real estate and automobiles.

Unless the transmission is swift and full, we may not see a change in the consumption and investment trajectory — Sandip Somany, FICCI President

The rate cut will help rejuvenate consumption and competitiveness of the producers with reduced cost of capital — Rajeev Talwar, President, PHD chamber of commerce and industry.