Economy stakeholders urge apex bank to cut lending rates

New Delhi, June 1 (IANS) On the eve of the Reserve Bank of India’s (RBI) bi-monthly monetary policy review, India Inc, stock analysts and even the government have urged the apex bank to cut key lending rates and ease the monetary policy.

The Federation of Indian Chambers of Commerce and Industry’s (Ficci’s) President Jyotsna Suri has said: “Revival of capex (capital expenditure) is critical to push the growth further and create new employment avenues.

“While the government has given a push to public investments in infrastructure, private investments are still languishing on account of low capacity utilisation and weak consumer demand,” Suri said.

According to the industry body, successive rounds of its business confidence survey have shown that investment outlook remains cautious, with majority participants citing availability and cost of credit to be a major constraining factor.

From the government’s side, both Commerce Minister Nirmala Sitharaman and Power Minister Piyush Goyal have requested the apex bank to assist India Inc recover from the economic slowdown by cutting key lending rates.

“I only ask for an affordable rate of interest for the industry because credit internationally is now very cheap,” Commerce Minister Sitharaman had said.

“A rate cut is essential for economic revival to take place,” she added.

Power Minister Goyal said: “The whole country is waiting with bated breath to see if the RBI governor reciprocates.

“I am hopeful that interest rates will go down in the coming days,” he said.

The apex bank’s governor Raghuram Rajan has twice cut the repo rate at which RBI lends to commercial banks over two unscheduled monetary policy reviews in January and March, bringing it down to the current 7.50 percent.

On the other hand, the scheduled reviews in February and April passed without any changes being effected.

Rajan had kept interest rates on hold at 7.50 percent in April saying he was waiting for banks to pass on the RBI’s previous rate cuts, and dismissed bankers’ claims that the cost of funds remained too high.

Even the Indian equities indices are looking forward to a rate cut that can either fasten or slow-down their growth momentum.

“The mood and expectations right now is of a 25 basis points cut. But the markets will rally if there is a 50 basis points cut,” Devendra Nevgi, chief executive of ZyFin Advisors, told IANS.

The markets are hopeful that the better-than-expected retail and wholesale price data will prompt the apex bank to cut rates and kick-start the consumer cycle in the country.

The retail inflation eased nearly 40 basis points to 4.87 percent in April, official data showed.

The annual rate of wholesale price inflation (WPI) decelerated further to its lowest in the last six months at (-)2.65 percent for April from (-)2.33 percent for the previous month.

However, industrial recovery hopes have been belied with the growth in India’s factory output slowing to 2.1 percent in March.

“A 25 or 50 basis points cut will stabilise the markets after the initial downtrend that is expected to take place due to the Greece crises,” Nevgi said.

Analysts said the rate cut will lead the foreign investors back into India, as it will be one amongst a few growing countries that still have the potential of a rate cut.

The outlook and language used by the governor will also be very important to gauge the traction of RBI’s strategy vis-a-vis US Fed moves on rate hike.

“Any statement by the RBI governor has the power to either boost the markets or sink them,” Nevgi observed.

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