ASSOCHAM expects RBI to cut interest rate by 50 bps or more

ASSOCHAM expects RBI to cut interest rate by 50 bps or more

Agency News

Mumbai Aug 5 : Industry Apex body ASSOCHAM expects the Reserve Bank of India to cut the benchmark policy Repo rate by 50 basis points or more, in the wake of a realistic assessment of the state of the economy which needs an immediate demand push and investment support by way of reduced cost of borrowing.

''The ASSOCHAM held wide consultations with stakeholders and a deep down assessment showed that a double-pronged strategy of reviving consumer demand and reducing the cost of borrowing for inducing fresh investment is needed immediately. Both the RBI and the government are expected to jointly work on a model that infuses more liquidity, especially for sectors like NBFCs, automobile, housing and real estate,'' the chamber said, ahead of the bi-monthly review of the credit policy by the RBI Monetary Policy Committee. The measures like additional infusion of Rs 10,000 crore by the National Housing Bank into the housing finance companies, are certainly welcome.

The chamber said, while the RBI has already cut the Repo rate by 75 basis points, the transmission is much less than even half by the banks, which should now be prevailed upon to pass on the reduction in the benchmark policy interest rate.

It said in 2013, RBI had opened a special liquidity window wherein banks were allowed to borrow a total of Rs 25,000 crore to meet the cash requirements of mutual funds (MFs), which faced heavy redemption pressure in debt-oriented MF schemes. ''Special window on similar lines may also be opened by RBI to provide relief to the troubled NBFCs to ease out the current liquidity issues and to avoid systemic failure.''

The ASSOCHAM said this is the ideal time for a rate cut by a significant way as inflation is below the RBI target of 4pv and the gap between the nominal and real interest rates is quite high, while the credit offtake remains slow. (UNI)