The Reserve Bank of India (RBI) on Friday cut interest rates for a fifth straight meeting this year, stepping up its efforts to kickstart an economy growing at its slowest pace in six years.
The reduction in key policy rate by the RBI is expected to revive investment and encourage consumption, thereby kick-starting the sluggish economy, India Inc said on Friday.
The industry emphasised that it was now critical for banks to facilitate a faster transmission of rate cuts to ensure that the measures reap results.
CII Director General Chandrajit Banerjee said the cumulative 135 basis points rate cuts this year along with a slew of measures announced by the government to provide growth stimulus to a variety of sectors is expected to lift growth from its current stupor and unleash animal spirits.
PHD Chamber of Commerce and Industry President D K Aggarwal said Friday's repo rate cut will help induce demand and refuel economic growth in coming quarters.
"The reduction of repo rate by 25 basis points is a welcome move indeed by RBI. We hope that the banks would fully pass on the repo rate cut benefit to consumers in the form of lower lending rates," Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera said in a statement.
The onset of festive season along with the availability of cheaper finance should induce higher demand for vehicles, he added.
"This further reduction of repo rate will not only bring down the lending rates but also incentivise investment and boost consumption," said Surendra Hiranandani, CMD, House of Hiranandani.
The RBI's latest move to trim repo rate comes at a time when the economic growth has hit a six-year low of 5 percent. This is the fifth straight rate cut by the central bank in as many policy reviews in 2019, and takes the total quantum of reductions to 1.35 percent.
SBI Chairman, Rajnish Kumar said, the 25 bps rate cut coupled with an explicit policy acknowledgement of further rate cuts would ensure that fiscal and monetary policy work in tandem in arresting growth concerns. "The lowering of the GDP growth outlook to 6.1 percent for FY20 also reflects a realistic projection in view of the weak domestic demand, slowing global growth and the continuing trade tensions," he said.
Exporters body FIEO's President Sharad Saraf however, said the challenges in exports will continue and may aggravate with geo-political situation.
Muthoot Pappachan Group CMD Thomas John Muthoot said for the common man to get the benefits of these cuts, it is important that banks ease the challenges for NBFCs to get funding from them, eventually pushing consumer sentiment.
"The rate cut is expected to complement other fiscal measures such as the corporate tax rate cut that was announced last month to propel GDP growth," said Anshuman Magazine, Chairman & CEO, India, South East Asia, Middle East & Africa, CBRE.
RBL Bank economist Rajni Thakur said the central bank is reaching its lower bound of policy space and has tried to steer support expectations away from monetary side, adding that it does not see more than 15-40 basis points additional cuts in this cycle.
Given the concerns on growth and inflation remaining within the target levels, a majority of analysts were expecting the RBI to cut rates at the policy review meet.
Aditi Nayar, princial economist at ICRA said, "The 25 bps rate cut is in line with our expectations, with the broad-based and sharp slowdown in economic growth momentum remaining the key focus amidst a relatively benign inflation outlook."
The substantial cut in the GDP growth forecast for FY2020 underscores the extent of the growth slowdown, and the limited likelihood of an immediate revival despite the cumulative 135 bps of monetary easing undertaken by the MPC in 2019 as well as the measures announced by the government, Nayar said.
Lakshmi Iyer, chief investment officer (Debt) at Kotak Mahindra Asset Management Company said, "The MPC voted for 25 bps repo rate cut. It also remained committed to maintaining accommodative stance that aids growth-revival to the extent needed. The tone seems tilted towards a softening bias. With the intent to maintain adequate liquidity in the banking system, bond yields could remain well-anchored. This is conducive especially for short end of the yield curve. Global factors will assume centre stage now, which will determine near-term movements in the yield."
Sujan Hajra, chief economist at Anand Rathi Shares and Stock Brokers said, "Despite the 25 bps rate cut being at the lower bound of expectations, RBI remains concerned on growth and guided for continued accommodative monetary policy stance. While the RBI continues to expect growth revival in the second half of FY20, growth rates have been reduced for both FY20 and Q1FY21."
Amar Ambani, president at Yes Securities said, "Concerns on the fiscal side on account of lower GST revenues and corporate tax cuts possibly dissuaded the RBI from a steeper rate cut." "Nevertheless, the accommodative policy action from the central bank is quite expected given the deceleration in frequency indicators and protracted slowdown in private consumption." "The need of the hour is to revive the economy."
Rupa Rege-Nisture, group chief economist at L&T Finance Holdings said, "It is a no-event monetary policy. A reduction of 25 bps was factored in by the street. What is noteworthy is the MPC's clear admission that growth has slowed significantly and broad-based demand weakness will keep headline CPI under check." "There is definitely a scope for further rate cuts but as the MPC has rightly asserted, intensified efforts are needed to restore the growth momentum." "In our opinion, the RBI as a central bank has done more than enough to stabilise economic settings. From here onwards, monetary easing may not achieve much incrementally." "Instead of aggressive easing, what we need is the dedicated effort to remove structural constraints at the individual sector level. The RBI can support this effort by focusing on financial stability."
Siddhartha Sanyal, chief economist, Bandhan Bank said, "The cut was in line with market consensus, and we wouldn't have been surprised if the magnitude of the cut was slightly higher. We continue to see inflation well-anchored. This will offer the central bank more room for easing going ahead. We see rates eventually going to sub-5 percent by the first half of 2020." "We expect some more transmission of rate cuts to borrowers will happen given that the cumulative reduction in repo rate is now 135 basis points during 2019. But that will likely be only a gradual process, given the current weak sentiment and lack of momentum in investments and credit demand from larger corporates in several pockets of the economy." "Interestingly, in the absolute lower end of the socio-economic pyramid, however, credit growth seems to be notably better at the moment."
Angha Deodhar, economist at ICICI Securities said, "We are penciling in one more rate cut, albeit of a smaller magnitude (around 15 bps). This takes our terminal repo rate expectation to 5 percent by the end of FY20. Likely pick-up in growth and inflation in H2 along with the fiscal stimulus provided by corporate tax cuts are likely to limit the room for MPC to cut rates." "The upward revision in Q2 inflation confirms that the MPC had underestimated inflation previously." "Currently, the outlook for economic growth is weak, both domestically and globally. Hence, aggressive easing of monetary policy is unlikely to boost economic growth significantly."
Garima Kapoor, economist, Elara Capital said, "While lower lending rates are welcome, they alone may not be able to turn around the sentiment in the economy. It would need to be accompanied by spending from the government." "The current sluggish growth dynamics and benign outlook on inflation suggest that the MPC would have more room to cut rates." "By November-end, data is likely to indicate that GDP growth in Q2 hasn't improved much from Q1 levels basis the high-frequency data. We expect terminal repo rate to be 4.75 percent in this easing cycle." "With the linking of floating lending rate to external benchmark, the transmission of rate cuts from here will be immediate. Moreover, with RBI maintaining surplus liquidity and continuing to guide for an accommodative stance, we believe the transmission is only likely to improve from here."
K. Joseph Thomas, head research at Emkay Wealth Management said, "The RBI has once again proved to be well ahead of the curve in unleashing monetary efficacies to combat the economic slowdown... with the cut of 25 bps (and) bringing down the repo rate to 5.15 percent." "In conformity with this aggressive approach, the RBI is likely to continue with its campaign for more rapid transmission of the benefits to credit users, through lower rates to a large extent linked to the base rate. There may be further cuts in the rate in light of the GDP growth forecast being lowered form 6.90 percent to 6.10 percent for FY20. We need to see more action from the government for a consumption-led recovery."
Ms Manju Yagnik Vice Chairperson Nahar Group and Vice President NAREDCO (Maharashtra) said, "The real estate sector as a whole has been anticipating a much required rate cut that would boost property purchase, especially with the festive season being right round the corner. Since February, the RBI has cut the repo rate five times, from 6.25 percent to 5.15 percent, cumulating to a total reduction of 135 basis points (bps). In light of this, apart from the steps taken by the finance minister in order to revive the country's slow paced economy, the RBI too hasn't backed out from its expectations from the various struggling sectors across the country. Slashing out an addition of 25bps rate cut, will surely help revive the sector and boost its performance. With this additional benefit the consumers can now invest into the sector along with the external perks of bonus and festive offers made available at their disposal. Also an important step taken by the government in order to curb inflation and continue maintaining an accommodative stance, by opening up the sector to all potential home buyers in the market. "
Ram Walase, Managing Director & CEO, VBHC Value Homes Ltd said, "The rate cut pass-on alongwith the existing incentives would benefit the affordable housing sector".
JosÃ© Braganza, Joint Managing Director, B&F Ventures (P) Ltd said, "The current rate cut announced today is a welcome positive step; a much-needed move during the festive season. This will go a long way to help boost sentiment. It will help increase the consumption amongst potential buyers and help reduce unsold inventories. Additionally, the recent mandate by RBI to link the repo rate with fresh home loans will help in the transmission of the rate cut. We believe that the government will now take measures to help with the housing demand in the country".
Sathya Kalyanasundaram, India Country Head and Managing Director, Experian India, said. "The change in the repo rates directed by the RBI will provide a boost to the current credit lending segment and augurs well for the economic growth of the country. There is an increase in consumers' willingness to take credit to fund their changing lifestyle needs. The number of loan accounts have surged between 2016-18 at a cumulative growth rate of 45 percent, leading to approximately 1.5x increase in the loan amount during the same period. There has also been a significant shift in the age profile of new borrowers. Gen-X and millennials (<25 to 40 years) now contribute to approximately 60 percent of the sourcing for consumer lending products. The recent measures undertaken by the Finance Minister is also a step in the right direction towards ensuring economic stability."
Rahul Gupta, Currency Head Research, Emkay Global Financial Services said, "Over all the policy was in line with market expectations and it did not have any major impact on rupee. As expected RBI cut repo rate by 25 bps to 5.15 percent from 5.40 percent and continued the accommodative stance. The only surprise factor was a sharp cut in FY20 GDP to 6.1 percent from 6.9 percent as local economic activity has weakened along with slowdown in global economy and lingering geo-political tensions. While, the central bank has increased its Q2FY20 CPI target to 3.4 percent from 3.1 percent. Going ahead, we expect RBI to continue the rate cut cycle until the GDP doesn't begin to revive. Going forward we are not expecting USDINR to fall below 70.50. hence the range for next week will be 70.65- 71.35".
Zarin Daruwala, CEO, India, Standard Chartered Bank said, "RBI reaffirmed its strong commitment to India's growth by cutting the repo rate by 25 bps and continuing with its accommodative stance. Cumulative reduction of 135 bps in repo rate delivered so far in 2019, along with the recent cut in corporate tax by the Govt., should help revive growth in the coming months. Additionally, the move to a 24x7 NEFT payment system and allowing domestic banks to offer forex prices to non-residents, are some of the other positive steps."
Udaya Kumar Hebbar, MD and CEO of CreditAccess Grameen said, "We welcome the modifications made for NBFC-MFI lending norms, which is very positive for MFI sector, also directly enhances credit to the bottom of the pyramid. RBI move to cut the repo rate by 25 bps, is a bold move, however the delay in transmission of this reduction is hurting the ultimate borrowers. We expect steps by RBI to ensure the transition of the same by banks, which will support the ultimate low income households. The liquidity framework is another key driver for stability for the lending platforms and we expect some actions on this. With recent steps taken by RBI to enhance the funding by banks to NBFCs, as well as recently unveiled growth supportive policies by Government will enable further momentum for the economy".
George Alexander Muthoot, MD - Muthoot Finance said, "RBI's rate cut of 25 bps focuses on improving the financial health of the economy and managing inflation. We look forward to recovery in consumption levels with banks eventually passing on the benefits to both corporates and consumers. With constant rate cuts, amendments in policies and the beginning of festive season, we expect the economy to be soon in its best health."
B Prasanna, Group Head " Global Markets " Sales, Trading and Research, ICICI Bank said, "Even as the MPC's action today was on expected lines, it broke new ground by clearly signaling a forward guidance of accommodation by acknowledging "policy space" given that inflation remains under control and the output gap becoming even more negative. The fact that RBI sees inflation remaining between 3.5-4.0 percent for the entire FY2021 also reinforces this "space". Our inflation forecasts remain above the RBI's for H2 though we believe it would not remain above 4 percent on a sustained basis. We, however, agree with the RBI's concerns on growth and expect GDP for FY2020 to be ~6.1 percent. This leads us to believe that there is room for the terminal repo rate to possibly move to 4.75 percent. We also believe that the RBI will provide support for systemic liquidity and continue to keep it in surplus."
Gayathri Parthasarathy, Partner and National Head, Financial Services, KPMG in India said, "The Reserve Bank of India's (RBI's) continued expansionary monetary policy decision would further provide impetus to the government's fiscal efforts to revive the economy. With further reduction in interest rates, it is now crucial that the transmission effect sets in quickly, so as to kickstart new investments and business activity; ahead of the festive season."
Mayank Jalan, President, Indian Chamber of Commerce said "'RBI's repo rate cut is a welcome decision and appreciated by Indian Chamber of Commerce. Reduction in rate will bring down the lending rates and hence will provide the much-needed liquidity in the economy. It will also incentivize investment and boost consumption. As a Chamber we expect that the rate cut will complement the recent measures taken by the Government to boost the economy,".
Ashok Mohanani, Chairman, EKTA World said, "For the fifth time in a row, the RBI cuts the repo rate, this time by 25 basis points which came down to 5.15 percent. With an overall cut of 135 BPS in 2019, the RBI has pumped lot of liquidity into the banking system which should make a clear pledge to keep the banking system glow with liquidity. While the cost of capital is headed lower, we trust future commencement will be in baby steps, motivated by lowering of inflation expectations; a global recession notwithstanding. It will definitely spur growth for the real estate sector specifically. There have been many meaningful interventions by the government and regulator which has provided a positive boost to the home buying sentiment among the potential homebuyers. Rate cuts will guarantee affordability in terms of home loans and thus lowered EMI, lower GST, and tax discount for the middle class as per as interim budget. Furthermore, we are also hopeful that the financial institutions will reduce the interest rates on construction finance. All this will certainly provide some sales momentum to real estate."
Kiran John, Joint Managing Director of Terapact said, "In line with the government's efforts to revive growth in the economy, the RBI has lowered the repo rate to a record level. This further reduction of repo rate is a much needed and encouraging move and will propel the Indian real estate industry into a recovery drive in the near future. It will now definitely be a buoyant festive season for the sector. This move will ease liquidity and leave more money in the hands of home buyers. Despite the reduction in repo rates by the RBI in the previous reviews, it did not have any significant impact on lending rates. We now hope that the current rate cut would translate into lower EMIs and help soften home loan rates and also boost sales. Lower interest rates, along with other positive reforms announced recently will provide the fillip to end user demand. Since the current and the future market is promising for the end user, such financial decision will definitely help the end user take a decision with the lowering of interest rates. This will also bring back fence-sitters who were waiting for the perfect opportunity to invest in their dream home. Overall, this is going to have a positive impact on the housing market and we expect sales and launches to gain further momentum in the near future".
Chintan Sheth, Director, Ashwin Sheth Group said, "The Reserve Bank of India's decision to reduce repo rate by 0.25 percent bps is a step in the right direction. This accommodative stance will help in stirring demand among homebuyers. With festive season beginning, this decision has come at a right time. Today's announcement will help in boosting consumption, in the existing scenario when there's an economic slowdown. Secondly, RBI's recent mandate on directly linking repo rate with fresh home loan rate was much needed to ensure immediate transmission of rate cut. After RBI's decision, we request the government to take necessary steps to create housing demand across segments in this slowed economy,".
Aditya Kumar, founder and CEO, Qbera said, "The rate cut by the RBI is a welcome move to revive the economy and reverse rampant concerns of a growth slowdown. With the drop in repo, banks can borrow at lower rates and lend more, thereby directly improving the economy's capital inflow. The benefit will be passed-on to NBFCs who've been steadily recovering from an ingoing liquidity crunch post the IL&FS crisis. Fintech lenders who have active partnerships with NBFCs will be presented with a much-needed impetus through increased capital availability, helping them to expand the scope of their lending activities".
(With inputs from agencies)