Economists India Inc hail surprise rate cut by RBI

New Delhi: Expecting a near-term boost to economy from RBI’s rate cut, Minister of State for Finance Jayant Sinha on Wednesday said the decision should bring down the loan EMIs significantly and there is room for further easing of rates.

The rate cut would give a boost to economy in the near terms and EMIs will come down significantly, the Minister said. “What is going to happen to rate cycle moving forward is going to be driven by data and RBI has signalled this clearly,” he said, while adding that further room for easing rates remains. He said that inflationary expectations have collapsed and a global trend of deflation was prevalent.

“RBI has appreciated budget’s ‘fine balance’. It is a welcome step for all citizens of India as everyone is looking for near-term boost in economy,” he added.

Chief Economic Adviser Arvind Subramanian also said that the rate cut by RBI is a welcome step and good for economy. “Government and RBI share views on economic outlook,” he said, while adding that the move shows that Budget is conducive for non-inflationary growth.

Cheering the surprise rate cut by RBI, India Inc said the move sends a positive signal to investors and will help boost growth by lowering the cost of capital. 

CII Director General Chandrajit Banerjee said “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, even while not losing sight of inflation, which has now been made explicit in the objectives of the RBI.” 

Encouraged by softening inflation and fiscal consolidation roadmap by the government, RBI on Wednesday slashed key policy (repo) rate by 0.25 % to 7.5 %, the second such surprise rate cut outside regular policy review in less than two months. 

“Coming on the back of reform measures initiated in the Budget, Wednesday’s rate cut by RBI is a great booster for the economic growth, which seems to be the area of focus for the central bank. 

“It will surely boost the morale of the consumers as also lower the interest costs of the industry,” Assocham President Rana Kapoor said. 

The cut in the policy rate by RBI will help in lowering interest rate for individual and corporate borrowers. 

It will thus make home, auto and corporate loans cheaper. 

However, cash reserve ratio (percentage of deposits kept in government securities) has been left unchanged at 4 %. 

Inflation measured by the wholesale price index (WPI) was at 0.11 % in December. The data for November was revised downwards to (-) 0.17 %, from the provisional estimate of zero. 

However, food inflation witnessed a rising trend in January and scaled a six month high of eight %, according to the government data released on Monday.

(With inputs from PTI)