Market had expected 25-50bps cut
The Indian industries have been surprised by the Reserve Bank of India’s decision not to further cut repo rate at its MPC meeting on 5 Dec 2019, many pointing out the weakening economy.
RBI kept the repo rates unchanged to 5.15% while revising economic growth to 5% from 6.1% previously.
“A reversal in the declining economic growth trajectory is clearly the need of the hour and all steps should be taken to bring about this change,” said FICCI President Sandeep Somany.
“A cut in the policy rate was also important for boosting the sentiment in the market and amongst investors, and FICCI was hoping for a bolder action on this front.
“In fact, we feel that a further cut of 75 to 100 basis points in the repo rate is required in a short period of time to strengthen growth in the economy,” he said.
With the growth projection for the current year being revised down from 6.1% to 5%, both government and the central bank should initiate some stronger measures to break the logjam particularly in the stressed sectors of the economy.
“There has been some active consultation between industry and government, and we expect that between now and the next Union Budget some of the additional measures suggested by the industry will be implemented,” Somany hoped.
The PHD Chamber of Commerce and Industry had urged RBI for a significant cut of 50 basis points in policy repo rate to induce demand and revive economic growth as the GDP growth of the country has decelerated to the level of 4.5% in Q2 FY2019-20.
Economic slowdown requires an immediate push to enhance the sentiments of businesses with reduced costs of capital, said PHD President Dr D K Aggarwal.
Dr Aggarwal had also called on the banking sector for the full transmission of the cut in policy repo rate undertaken by the RBI in the recent quarters to percolate the benefits at the ground level
Easy availability of money at this juncture becomes crucial to enhance the domestic demand which is one of the major reasons of slowdown in the economy, said Dr Aggarwal.
The expected rate cut of 25 bps would have caused home loan values to fall below 8% for first time ever, said ANAROCK Property Consultants Chairman Anuj Puri.
However, it is also true that another rate cut alone would have been insufficient to stir housing sales significantly across budget categories, acknowledged the veteran of real estate industry.
“I cannot remember the last time there has been such a resounding surprise as far as the RBI decision is concerned,” said Taimur Baig, managing director and chief economist at DBS Group Research.
“It defies the expectation of the market and also the body language of the central bank over the last six months or so when they seemed amenable towards out-of-the-box thinking and being very proactive in terms of supporting growth,” he said reacting to MPC keeping rate at 5.15 per cent.
DBS has also tried to see reasons behind RBI’s move, which it says is expected to retain a dovish bias, while its emphasis may switch towards ensuring that the aggressive rate cut this year gets transmitted to commercial lending rates.
“We think that the RBI will retain a dovish bias, but the emphasis may now switch towards ensuring that the aggressive rate cuts this year (cumulative 135bps) gets transmitted to commercial lending rates,” said DBS in a 6 Dec 2019 report.
The macro mix for India has deteriorated further lately, with the RBI revising FY 2019/20 growth down to 5.0% (6.1% previously) while bringing its CPI forecasts for H2 FY2019/20 up to 5.1% (4.7% previously).
There appears to be a bit more concern on rising food prices and inflation expectations, noted DBS.
“We would also note that the RBI pause appears broadly in line with what major central banks across the world (in the including the Fed) has been communicating,” said DBS. fiinews.com
