Mumbai: Industry leaders said on Thursday that while Reserve Bank of India's decision to cut repo rate by 25 basis points rate cut was on expected lines, concerns over economic growth and liquidity challenges continue to linger.
"Reviving business confidence, consumer confidence and triggering animal spirits in the economy is the need of the hour," said FICCI President Sandip Somany. "Given that real interest rates in India are amongst the highest in the world, there is room for further reduction in repo rate."
While RBI should continue the accommodative stance in coming months, said Somany, the new government should present a progressive Union Budget that will help revive consumption and encourage greater private investments.
Ramesh Nair, CEO and Country Head of JLL India, said economic growth has slowed down to a 20-quarter low of 5.8 pc during the last quarter of 2018-19. The consumption also has remained weak due to the ongoing liquidity crisis in spite of controlled inflation under 4 pc.
These trends have propelled RBI to reduce the repo rate for the third consecutive time to 5.75 pc from 6 pc, he said.
Zarin Daruwala, CEO of Standard Chartered Bank India, said the combination of repo rate cut, change to an accommodative stance and resolve to provide adequate liquidity will provide the impetus to counter growth and investment headwinds.
"A review of the liquidity framework is a welcome move and should aid monetary transmission. Additionally, the easing of the leverage ratio requirement will boost bank lending and should serve as the much needed countercyclical stimulus," he said.
Amit Gupta, Co-Founder and CEO of Trading Bells, said the possibility of further rate cuts this year remains open. "We can expect a further rate cut of 50 to 75 basis points in 2019. Real estate, banking, non-banking financial companies and auto sectors will be the key beneficiaries." Romesh Tiwari, Head of Research at Capital Aim, said the RBI's move was already discounted in the market. "We expect banking shares to remain strong in the mid-term while NBFCs may further correct before consolidating. Now all eyes will be on the Budget session which may bring some big measures for revitalising the economy."
Mustafa Nadeem, CEO of Epic Research, said the distress in rural demand and near-monsoon prediction has put some stress since it can push inflation a bit higher. "The cost of borrowing is a concern that needs to be stressed and banks should likely to pass the benefit to end consumer. The RBI has also put a stance further that it may take necessary actions that will help to keep financial stability."
R K Gurumurthy, Head of Treasury at Lakshmi Vilas Bank, said that with system liquidity close to Rs 1 lakh crore on the back of government spending and open market operations (OMOs) of Rs 15,000 crore to happen next week, the bond rally may have legs.
"One would however tread with caution as the Budget is slated for early July where the fiscal road map will be key to bond-supply dynamics. Also, many had expected direct measures on NBFC issues. They RBI may wait and achieve that, possibly with recommendations of the working group on liquidity management," he said.