India Inc welcomes cut in key lending rates

New Delhi: India Inc Wednesday welcomed the central bank's surprise decision to reduce key lending rates by 25 basis points.

"Coming on the back of a growth-oriented budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth," said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).

According to Banerjee, eve while giving growth a fillip by reducing key lending rates the central bank has not lost the sight of inflation.

"Clearly the government's intent is asset creation and therefore, a delay in one year in the fiscal consolidation road map should be viewed through the glasses of overall macroeconomic objectives.

"CII also agrees with the RBI on the importance of the states' fiscal discipline since it is the overall deficit - central plus states, that should be the operating parameter, rather than just that of the centre."

Banerjee concluded that the overall sound macroeconomic management and the clearly spelt out targets for fiscal deficit should allow the international ratings rating agencies to take a positive view of investment climate in India.

Another business body PHD Chamber of Commerce and Industry said that Wednesday's rate cut will benefit the common man with softening of EMIs on loans and the ripple effect t will also improve market sentiment and enable businesses to raise equity.

"Inducing demand scenario would be critical to re-fuel our economic growth trajectory and create jobs for millions of young work force. While containing the inflation, demand in the economy should remain intact," said Alok B. Shriram, president, PHD Chamber of Commerce and Industry.

Continuation of rate cut in the coming would be critical to help demand to remain intact and sentiment for investments to strengthen and grow, he said.

Angel Broking's chairman and managing director Dinesh Thakkar said that the surprise rate cut was in line with its expectations of a sharp rate-cutting cycle over the coming quarters.

"Having got the comfort in the budget of the government's commitment to high quality fiscal consolidation, in our view, the RBI is likely to embark on an extended monetary easing cycle, with at least another 50-75 basis points more of rate cuts in FY2016," Thakkar said.

"This is also aided by the substantial improvement in the current account balance, which has strengthened the rupee's fundamentals," he said.

Thakkar added that given the stronger rupee and substantial global monetary easing the RBI is finally in a position to narrow the differential in interest rates in India vis-a-vis global interest rates which are still at historic lows.

On Wednesday, the RBI reduced key lending rates by 25 basis points and said that it was expecting inflation to soften in the coming fiscal. However, it also expressed concerns over the postponement of fiscal consolidation target by a year.

In its monetary policy statement of Jan 15, 2015 the Reserve Bank had reduced the repo rate by 25 basis point. However, it maintained interest rate stance in its sixth bi-monthly monetary policy statement of Feb 3.

The RBI that time said it was awaiting more data on inflation and signals from the national budget.

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