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Last updated: 20 Jan, 2015  

RBI.Thmb.jpg RBI rate cut: It's government's turn to make a move

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Bikky Khosla | 20 Jan, 2015

The long wait is finally over. Last week, the RBI cut interest rates for the first time in nearly two years. The unexpected move ahead of the scheduled monetary policy announcement has been cheered up by the Indian industry. Burdened with high interest rates, the industry was eagerly waiting for such a step, particularly with industrial production struggling to pick up its pace.

The RBI governor has said that the decision is based on easing inflation pressure, driven by fall in prices of vegetables and global crude oil prices as well as on the reiteration of the Centre of its "commitment to adhering to its fiscal deficit target". Recently, the finance minister publicly criticized the RBI for sticking to a tight monetary policy, terming it as the "singular factor" responsible for the manufacturing slowdown. With the rate cut, the ball is now in the government's court.

The biggest question is - will the RBI rate cut be transmitted to the lending rate cut by banks? The repo rate is the rate at which the RBI lends to the commercial banks and therefore it is very likely that the lending rates would come down sooner or later. In fact, some state-run banks have already reduced their lending rates, while some others have indicated that they would follow suit. This week several lenders are scheduled to hold meetings to review their lending rate.

What is more important is that the rate cut, the first since May 2013, may signal the start of a downward cycle in interest rates. In his statement on the monetary policy, Rajan has hinted that subsequent policy actions will be consistent with the changed stance. Some economists even predict a rate cut by 75 basis points in the rest of the year. Such forecasts sound logical, but a lot will depend on the government's effort towards pushing growth.

High interest rates and difficulty in doing business are two big enemies of investment and now with the first issue being addressed to some extent, the Centre should do its best to take care of the second. The forthcoming Budget should include strong measures to improve the business environment. Serious thoughts must be given to increase investment on our poor infrastructure and remove the supply side bottlenecks. In particular, availability of inputs like power, land and minerals must be ensured. At the same time, quality fiscal consolidation is also required.

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RBI rate Cut
Srivathsan | Sat Jan 24 02:27:30 2015
Although RBI rate cut is welcomed by borrowers of funds it makes a small dent on people who put their funds but ultimately the society benefits in reduced burden of interest on manufactured goods. Here a small suggestion although it is out of context for this topic is shared. Amount of money in Public domain) banking sector must increase by making most of inputs and outputs of financial transaction through digital mode and only through banking circle. The areas which can be tries are Feriliser, seed, pesticides, petroleum products, insurance sector, telecom sector, corporate sector, Funds paid to Farmers for their produce, All government payments and receipts and in this manner most of the funds remain in Banking domain instead of Partly in cash and partly in bank. This does not create any liquidity imbalance and there is no need for cash withdrawal. All banking sector must be unified Including co operative bank.Non cash transaction has many advantages.

RBI rate cut
Shabbirhusain T Jariwala | Wed Jan 21 15:12:44 2015
Cut in interest rates may also take place for investors. Investors may find alternatives else where. Other aspects like Indigenous development through R & D, manufacture, reducing foreign dependency, Reduced profit margin, etc. is needed. Investors should be encouraged to go for Mutual Funds, etc. and encouraged to become partner with Banks, Industries, etc. Honest and dedicated democratic, bureaucratic, system etc. are needed. Taxation policy must be such that one should not look else where for cheaper goods reducing black marketing. Law of the nation should be such that it ceases to be paradise for lawyers. Taking in to consideration all the above and any other things may help achieve desired goals.

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