India Inc on Thursday welcomed the measures announced by the RBI to boost growth and improve liquidity, but called for slashing the policy rate, which was kept unchanged for the second time in a row.
The repo rate — at which the RBI lends short term money to banks — was kept unchanged at 5.15 per cent at the central bank’s last bi-monthly monetary policy announcement for 2019-20 on rising inflationary concerns.
In a major decision for effective transmission of monetary policy, RBI said it will conduct long-term repo operations aggregating up to Rs 1 lakh crore from February 15 by allowing one- and three-year repos to banks.
Currently, the lenders can access only short term repos, such as for overnight tenor.
“RBI’s decision to hold on to the policy rate comes on the back of inflation moving beyond the central bank’s comfort zone. While the outlook for inflation remains uncertain, FICCI is of the view that this is largely a supply side phenomenon,” the industry chamber said in a statement.
As growth in the industrial sector and the economy is still not on a firm footing, greater support from the central bank by way of a cut in the policy rate by at least 15-25 basis points would have been timely, FICCI President Sangita Reddy said.
Industry body Assocham said the RBI has adopted innovative moves to boost growth and help stressed sectors, sans policy rate cut.
“While RBI has chosen innovative ways, like changing the repo mechanism and liberal CRR (Cash Reserve Ratio) window to the banks for fresh lending to housing and automobile sectors and the MSMEs, the assertion by Governor Shaktikanta Das that policy space is still available with the central bank is re-assuring,” Assocham President Niranjan Hiranandani said.
The real estate baron added that the RBI credit policy has given a boost to critical sectors such as automobiles, housing and MSMEs, besides infusing additional liquidity of Rs 1 lakh crore in the banking system.
“This is expected to reduce lending rates even though the policy rates have been left unchanged at 5.15 per cent,” Hiranandani said.
“Another highlight is the relaxation given to the commercial real estate sector,” he added.
As per the policy decision, RBI has decided to permit extension of date for commencement of operations of project loans for commercial real estate, delayed for reasons beyond the control of promoters, by another year.
This would be done without downgrading the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector.
“We appreciate the RBI’s concerns on maintaining balance between growth and inflation dynamics in the Sixth Bi-monthly Monetary Policy Statement, 2019-20.
“Going ahead, there must be a significant cut in policy repo rate to the level of 4.5 per cent in the coming quarters to boost domestic demand, provide a fillip to investments and revive economic growth,” said D K Aggarwal, President, PHD Chamber of Commerce and Industry.
Though CPI inflation has been elevated in the recent times amid rise in the food prices, however, inflationary conditions are expected to ease in the coming quarters which will create policy space for future action, said Aggarwal.
For the ongoing last quarter of the current fiscal, the Reserve Bank has upped the retail inflation projection to 6.5 per cent, citing higher input cost for milk and pulses, and crude oil dynamics amidst rising geopolitical tensions.
Overall, the inflation outlook remains highly uncertain, RBI said.
FICCI’s Reddy said, “While the RBI has lowered the repo rate by 135 basis points since February 2019, the transmission of these rate cuts remains slow and the weighted average lending rates of scheduled commercial banks continue to remain high. The lending rates must move down if demand is to be supported in the economy.”
RBI said the Monetary Policy Committee (MPC) decided to continue with the accommodative stance as long as it is necessary to revive growth, while ensuring that inflation remains within the target.
It has targeted to achieve the medium-term target for consumer price index (CPI) inflation of 4 per cent within a band of +/- 2 per cent, while supporting growth.
“We appreciate that the RBI has decided to continue with the accommodative stance, given the evolving growth-inflation dynamics in the country,” said Aggarwal.
Siddhartha Mohanty, MD & CEO of LIC Housing Finance hoped the RBI measures will ease the norms to give relief to commercial real estate developers.
It will benefit the banks as they will not need to downgrade the asset classification, in line with treatment accorded to other project loans for non-infrastructure sector, he said.
Thomas John Muthoot, CMD, Muthoot Pappachan Group said the CRR (Cash Reserve Ratio) relief for automobile, housing and MSME loans is definitely a noteworthy point amidst the liquidity concerns in the market. This will help the lenders to lower their cost of deposits, ultimately transferring the benefit to the consumers.
Mayank Jalan, President, Indian Chamber of Commerce (ICC), said, “As a Chamber we expect that the holding of the rate will complement the recent measures taken by the government to boost the economy.
“The policy will be conducive to achieve the medium term target for consumer price index (CPI) inflation of 4 per cent within a band of +/2 per cent alongside growth.”