India Inc welcomes interest rate cuts

Last Updated: Tue, Jan 29, 2013 10:20 hrs

New Delhi, Jan 29 (IANS) India Inc Tuesday welcomed the Reserve Bank of India's decision to cut the repo rate and the cash reserve ratio (CRR) saying it would help growth in the economy.

"The Government has already started to take necessary actions to ensure that the growth process can be revived. Industry draws heart from the fact that the RBI has also now demonstrated that it is also aligned with the government in getting growth back," Confederation of Indian Industry director general Chandrajit Banerjee said in a statement.

"The CRR cut would help effective transmission of the reduction in the interest rate," he said.

The Reserve Bank of India Tuesday cut the repurchase rate, or the interest on short-term borrowings by commercial banks by 25 basis points to 7.75 percent. The reverse repurchase rate, or interest on short-term lending, also stands lowered by 25 basis points to 6.75 percent.

Another industry chamber, FICCI said the "release of Rs.18,000 crore (180 billion) with CRR cut of 25 basis points will help in easing the funds flow situation".

CRR, or the money commercial banks must retain in the form of liquid assets in proportion to their deposits, has also been lowered from 4.25 percent to 4 percent.

"In the recently conducted FICCI Economic Outlook Survey, participants also advocated the need to cut the repo rate immediately by 25 basis points and reduction by 75 basis points to 100 bps in repo rate through FY14 if the economic growth has to be brought back to the higher growth trajectory," said Naina Lal Kidwai, president, FICCI.

Assocham president Rajkumar N. Dhoot said: "The reduction of both cash reserve ratio and repurchase rates are steps in the right direction. But the system has to take this in the true spirit and the benefits have to be passed on to the end-users."

"In order to address the precarious liquidity situation in the economy, RBI has infused liquidity of Rs.1.3 trillion through outright OMOs (open market operations) so far in the current fiscal. It has also supplemented this by paring the CRR, in order to ensure that availability and cost of credit do not remain a challenge for the industry," CII said.

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