India Inc welcome steady policy rates, but seek full benefit of previous rate cuts

New Delhi: India Inc welcomed Governor Rajan’s decision to hold rates but appealed to pass on full benefit of previous rate cuts. This is the only way demand will accelerate, particularly in rural areas. Secretary General of the Federation of Indian Chambers of Commerce and Industry (FICCI), A D Singh, pointed out that just about half of the policy repo rate reduction of 125 basis points has been passed on. [caption id=“attachment_2528528” align=“alignleft” width=“380”]  Reuters[/caption] “RBI has kept the policy rates unchanged. While this was expected it is important to note the central bank’s observation on the transmission of the policy rate cuts announced till date. As mentioned, just about half of the policy repo rate reduction of 125 basis points has been transmitted by the banks till now. We would like banks to pass on the full benefits in the form of lower lending rates for both consumers and investors. This is important for revving up overall demand in the economy, which is still far from being robust. Of particular concern is the demand in the rural areas that has weakened on account of deficient monsoons.” Chandrajit Banerjee, the Director General of the Confederation of Indian Industries also said the focus has now shifted to the transmission of lower policy rates to banks’ lending rates. “Banks need to be ready to finance a pick-up in credit growth and RBI should ensure that high level of non-performing assets do not constrain banks from financing higher growth.” Banerjee said projections made by the RBI on GDP growth and CPI inflation were in line with CII expectations. “However, the RBI needs to note that WPI inflation as well as the GDP deflator continues to be negative, indicating deflationary trends in large parts of the economy,” he added. Singh of Ficci said the GDP numbers released yesterday showed an uptick and India is in the early stages of recovery. “However, for the growth momentum to be maintained and strengthen further, the investment cycle will have to be supported by all measures.” He said RBI is expected to soon finalize the methodology for determining the base rate based on marginal cost of funds and the Government is also examining linking small saving interest rates to market interest rates. “We look forward to these moves as these will allow for an improved transmission of repo rate movements in to lending rates by banks”, Singh said.