Rate cut on expected lines: M S Unnikrishnan

Transmissions of rate cuts by banks is the biggest challenge

The Reserve Bank of India (RBI) policy has been on expected lines and the rate cut is a positive indicator. Also, reducing the daily cash reserve ratio requirement of banks from 95 per cent to 90 per cent should release at least Rs 20,000 crore into the system. As Governor Raghuram Rajan has stated, banks have not been able to transmit the earlier rate reductions; it is the biggest challenge. Unless banks are able to reduce their deposit rate, they will not be able to reduce the lending rate. With the possibility of a normal monsoon and surplus capacity available for every commodity and manufactured items in the country, we should expect both the Wholesale Price Index-based and Consumer Price Index-based inflation to be under control. This, combined with the fiscal prudence reiterated by the finance minister, would necessarily make RBI effect further rate cuts in the rest of the year.

M S Unnikrishnan
MD & CEO, Thermax