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New Delhi(PTI): India Inc has pitched for rate cut to boost economic activities, but the Reserve Bank may not oblige in its annual policy tomorrow as unseasonal rain may adversely impact food inflation in the coming months.
Reserve Bank Governor Raghuram Rajan in his annual monetary policy is expected to draw a balance between the need to cut interest rate and contain inflationary expectations.
“Industry always wants rate cut. Low interest rate will bring down cost of fund for the industry,” Bajaj Group Chairman Rahul Bajaj told reporters on the sidelines of CII event here.
Echoing similar views, Adi Godrej, Chairman of the Godrej Group, said: “Rate cut by RBI is very much required. It will help in boosting economic activities.”
Also Read: Will RBI’s Rajan cut interest rates?
The Reserve Bank of India (RBI) has cut interest rate twice since January and is unlikely to further reduce it this time. However, RBI may indicate a rate cut in future after seeing some improvement on the price front.
State-run Union Bank’s Chairman and MD Arun Tiwari said it is “highly unlikely” that RBI would further ease its monetary policy on April 7, given the current price situation, as they have already done so twice in quick succession.
The RBI had lowered its policy rate by 25 basis points to 7.5% on March 4, after a similar cut on January 15, on the back of softening inflation and the government’s commitment to continue with the fiscal consolidation programme.
Both the rate cuts were announced outside RBI’s regular policy review.
State Bank of India chairperson Arundhati Bhattacharya said she would rather want the central bank to cut cash reserve ratio (CRR) so that the cost of fund can come down and the bank can pass on the same to the borrowers.
She said such a move would also help in an effective transmission of monetary policy action.
Asked if Statutory Liquidity Ratio (SLR) would help in cutting rate, Bhattacharya said, “May be reduced. But Liquidity Coverage Ratio (LCR) requirements will need us to invest in G-Secs. So SLR cut does not help much right now.”
Indian Banks’ Association Chairman T M Bhasin, who is also CMD of Indian Bank, said: “We are expecting a cut in CRR so that banks can reduce lending rate.”
Bhasin said that a cut in repo rate at this point would not help banks lower their interest rates, as they are not borrowing much. The credit offtake is low and is expected to remain so in the first quarter of 2015-16, he added.
Bank credit grew 9.5% in the fortnight ended March 20 — the lowest growth in last two decades.
CRR, the portion of total deposit parked with the RBI, currently stands at 4%.
HDFC Bank’s Principal Economist Jyotinder Kaur said the unseasonal rainfall in recent weeks across the northern and central regions of the country has had an adverse impact on key Rabi (winter) crops such as wheat, oilseeds and pulses.
As per an Assocham study, the damage could be at least 25-30 per cent to the crop yields.
The rains have sparked expectations that the RBI might wait till the full impact of the weather disturbance becomes evident and keep the key policy rates unchanged in its review on tomorrow, Kaur said.