It is an encouraging move: Seshagiri Rao

It is heartening to note that the Reserve Bank of India (RBI) has cut 25 basis points, both in cash reserve ratio (CRR) and the repo rate. The rate cut was anticipated and is a welcome move. It was much needed, given the gross domestic product (GDP) growth is moderating and industrial production is decelerating month after month. The rate cut is an encouraging move at a time when high interest rates were having a negative impact on the country’s economic growth.

There are tight liquidity conditions in the money market as reflected by borrowings under the repo window of over Rs 1,00,000 crore. More liquidity injection by RBI is the need of the hour as 0.25 per cent CRR cut releases only Rs 18,000 crore. The 0.25 per cent of CRR cut is not adequate.

Demand can pick up only by creating enough liquidity in the marketplace through monetary policy and also by reducing interest rates to be affordable to the consumer. So, these are very important steps.

Capital expenditure is the next one where the investment cycle would come back and where fiscal policy should also support monetary policy to achieve it. As on date, in every sector, we are seeing capacities being created, there is no pricing power with the industry and at the same time, demand is not there in the market. So, demand potential is there but that is getting reduced because monetary policy is not tuned to provide liquidity in the system and interest rates are unaffordable.

Therefore, there is a need for RBI to look into these aspects and take more steps in pumping liquidity in the market and reducing interest rates is very, very important. When RBI has already cut the policy rate by 0.25 per cent, it’s expected that there can be more such cuts in future. Transmission to borrowers by way of lending at a lower rate is required.

The transmission of a lower interest rate to borrowers in response to cut in repo rate should take place swiftly as banks have already reduced deposit rates for the past few months.

We also wish the government pushes reforms, as this would improve business sentiment, spur investments in the economy and create more monetary space for further easing.

Seshagiri Rao
JMD & Group CFO, JSW Steel