Bankers, industry say repo rate cut is positive step (Lead)October 20th, 2008 - 9:06 pm ICT by IANS
Mumbai/New Delhi, Oct 20 (IANS) Surprised bankers, analysts and industry welcomed the central bank’s cutting the repo rate by 100 basis points Monday, saying it was a positive step to bring financial stability in the system.The move, which takes immediate effect, came ahead of a monetary policy review Friday.
The Federation of Indian Chambers and Commerce and Industry (Ficci) said the move would “definitely serve as a confidence booster for the financial sector and the real sector”.
“However,” said Ficci secretary general Amit Mitra, “instead of making step by step announcements, there is a need for a Big Bang approach with deeper cuts at one stroke in repo as well as bank rate in order to signal lower rates of interest to the banking sector.”
Ficci has also called for lowering of the rate of statutory liquidity ratio (SLR) - the amount banks have to keep in the form of cash, gold and approved securities - and utilisation of a small portion of foreign exchange reserves for lending through banks to corporates for meeting credit requirement.
“This is totally unexpected,” said Development Credit Bank managing director and CEO, Gautam Vir. “I was expecting a cut of 50 bps in repo rate during the credit policy review this week.”
But Vir welcomed the move by the central Reserve Bank of India (RBI). “This will bring liquidity in the market. This a clear signal by RBI to boost the economy,” he said.
Like him, Religare Securities President Amitabh Chakraborty too said he expected a 50 basis point cut at the credit policy review meet. “Instead, a 100 basis points cut has been announced today (Monday), it is unexpected.”
Saying the measure was a step in the right direction, he added: “The markets may rise.”
Yes Bank chief economist Shubda Rao said while the move would smoothen credit concerns, “interest rate will not be coming down overnight”.
Echoed IDBI chairman Yogesh Agarwal: “It is too early to speak about interest rate cuts.”
Rupa Rege Nitsure, an economist at Bank of Baroda, said while the move would boost market sentiment, it was a “bit premature”. “This shows RBI has taken the view that inflation is going to ease in coming months,” she said.
Sajjan Jindal, president of industry lobby Associated Chambers of Commerce and Industry, said the measure would bring relief to the financial system.
However, the chamber said mutual funds, which are reeling under the severe liquidity pressure, are being charged 11-15 percent interest rates by the commercial banks despite the RBI’s special scheme to lend to them at repo rate.
“Mutual funds are one of the key instruments for players in the financial markets and need to be given adequate liquidity to deal with the present crisis,” Jindal said.
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Tags: 100 basis points, cash gold, chief economist, confidence booster, credit concerns, foreign exchange reserves, indian chambers, reserve bank of india, statutory liquidity ratio, step in the right direction