Transmission Of Rate Cut Seen As Major Hurdle In Growth Revival

Mumbai, October 5: India’s interest rate cut cycle is not over yet and there still remains space for further rate cuts in the forthcoming monetary policy committee (MPC) meetings. The major hindrance to revive growth along with other issues, is transmission in the reduction of interest rates, opined market participants, while reacting to the 25 basis points (bps) rate cut announced by the Reserve Bank of India (RBI) at the end of its two-day MPC review meeting on Friday. 

 Amar Ambani, Head of Research – Institutional Equities, YES Securities said, “MPC delivered yet another 25 bps rate cut, bringing the cumulative reduction in interest rate of 135bps for this calendar year. Concerns on the fiscal side on account of lower GST revenues and corporate tax cuts possibly dissuaded RBI from a steeper rate cut. Nevertheless, accommodative policy action from the central bank is quite expected given the deceleration in frequency indicators and protracted slowdown in private consumption. In terms of future policy action, there is certainly scope for further rate move given the weak domestic demand conditions accompanied with contained inflation trajectory. There is a possibility of another 15 to 30 bps further cut. On the bond markets, the possibility of yields rising cannot be ruled out, but eventually we see them headed lower. Moreover, policy transmission will eventually take place, which has not been yet materialized optimally.”

VK Vijayakumar Chief Investment Strategist at Geojit Financial Services: "The big take-away from the extremely accommodative monetary policy is that the central bank and the Government are in sync on the policy response to revive growth. The MPC’s view that there is further policy space for accommodation to revive growth clearly indicates that more rate cuts are in the offing. Eventually the Repo rate is likely to settle at 4.75 percent in this rate cut cycle. This is good news for the markets even though the markets are concerned about the issues in the NBFC and housing finance space".

Shishir Baijal, Chairman & Managing Director, Knight Frank India said, “The central bank and the government have taken several measures to aid the supply side in the recent past. However, it is the weak consumer sentiment and spending inability that is the fundamental problem of the current economic slump. Unless meaningful initiatives are taken to propel consumer demand, these supply side interventions may not meet the desired goal of economic revival.”

Gaurav Gupta, CEO, Adani Capital said, "The fifth consecutive rate cut by the MPC reiterates the commitment of the central bank to support the government in its efforts to revive economic growth. The true impact of the rate cut in boosting consumer sentiment will be determined by how smoothly banks facilitate its transmission to end customers. This coupled with bolstering the liquidity positions of retail NBFCs who play a crucial role in meeting the credit requirements of micro and small businesses will add further impetus as Access to easy working capital for these businesses will be key to spur consumption which will have a far-reaching effect on economic growth.”