RBI's minor rate cut insufficient: General Motors

The Reserve Bank of India' (RBI) decision on Wednesday to cut its lending rates was a minor reduction and not enough to stimulate consumer demand for loans, a senior official of car-maker General Motors India said.

"The minor rate cut is just not enough to stimulate consumer demand for loans and improve the market conditions in the near term," P. Balendran, vice president of General Motors, said in a statement.

"Even the 25 basis points reduction effected earlier this year did not lead to any pickup in economic activity since the interest rates charged by banks didn't come down."

He said that to have a visible impact, rate cut should be at least 100 basis points to encourage consumer spending.

"Since the budget had no positive takeaways for the automobile sector, we must see the coming months with cautious optimism and there seems to be a long way to go in ensuring sustained growth."

He, however, said the rate cut is seen as a positive move and hoped that the rate reduction continues in phases to aid in the economic turnaround.

In a surprise development earlier in the day, the RBI cut its key lending rates by 25 basis points expecting inflation to soften in the coming fiscal.

The RBI also expressed concern over the postponement of fiscal consolidation by a year.

Getting some positive cues from the national budget tabled last week, and sensing an economic recovery, the repurchase (repo) rate has been cut to 7.5 percent from 7.75 percent, while the reverse repo rate has been adjusted to 6.5 percent from 6.75 percent.

The repurchase rate is the interest commercial banks pay for borrowing money from the central bank to meet short-term fund requirements.

The reverse repurchase rate is the interest central bank pays when surplus short-term funds are parked with it by banks.

The rate cuts immediately follow a far-reaching agreement between the government and the RBI on Monday under which the central bank will aim to bring the country's retail inflation below the 6-percent mark by January 2016 and to around 4 percent by the end of 2016-17.