Industry upbeat, says the move will boost demand

Sanjeev Sharma

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Tribune News Service

New Delhi, October 4

While the first monetary policy review under the new RBI Governor Urjit Patel surprised analysts with a rate cut of 25 basis points, it has buoyed the spirits of India Inc just before the festival season and industry is asking banks to pass on the rate-cut benefit to consumers to boost demand.

Analysts said the rate cut went contrary to expectations. Ritika Mankar Mukherjee, VP, Senior Economist, Ambit Capital, said, “Contrary to our expectation, the MPC decided to cut rates by 25bps. We were of the view that it would make sense to hold rates in October because even as pulses price inflation is likely to remain under control, there is no guarantee that other constituents of the food basket stay under control”.

Outlining other reasons to hold rates, she said it may be wise for the Indian central bank to wait for the November meetings of the GST Council when the rate structure is likely to be discussed.

Sunil Sinha, Principal Economist, India Ratings, said this is clearly a case of front loading the rate cut and resting the hope on moderation of food inflation due to favourable monsoon and its impact on crop production, particularly pulses, without giving adequate weightage to the lethal combination of structural and cyclical component of food inflation which has more than often surprised on the upside rather than on the downside in the recent past.

India Inc has welcomed the move which, it says, will boost demand. Harshavardhan Neotia, president, FICCI, said, “RBI’s move to cut the repo rate is welcome and is very timely. We hope that going ahead this would translate into a greater pass through by the banks and would yield into further lowering of lending rates.”

Also, a moderate interest rate regime will lead to an uptick in interest sensitive sectors such as consumer durables, automobiles and housing,” he added.

CII said more than the quantum of the rate cut, it sends a very positive signal and CII commends the Governor for this very strong message.