Cheering the surprise rate cut by RBI, India Inc has said the move sends a positive signal to investors and will help boost growth by lowering the cost of capital.
CII director general Chandrajit Banerjee said, "Coming on the back of a growth-oriented budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth, even while not losing sight of inflation, which has now been made explicit in the objectives of the RBI."
Encouraged by softening inflation and fiscal consolidation roadmap by the government, RBI on Monday slashed key policy (repo) rate by 0.25% to 7.5%, the second such surprise rate cut outside regular policy review in less than two months.
The short term lending rate (repo) will be reduced from 7.75% to 7.5% with immediate effect and the other rates would be adjusted accordingly, RBI governor Raghuram Rajan announced.
"Coming on the back of reform measures initiated in the budget, today's rate cut by RBI is a great booster for the economic growth, which seems to be the area of focus for the central bank.
"It will surely boost the morale of the consumers as also lower the interest costs of the industry," Assocham president Rana Kapoor said.
Soon after RBI's decision to lower rates by 0.25%, minister of state for finance Jayant Sinha said that the rate cut was a vote of confidence for the union budget presented last week.
The rate cut would give a boost to economy in the near terms and EMIs will come down significantly, the minister said.
"What is going to happen to rate cycle moving forward is going to be driven by data and RBI has signalled this clearly," he said, while adding that further room for easing rates remains.
He said that inflationary expectations have collapsed and a global trend of deflation was prevalent.
Chief economic adviser Arvind Subramanian also said that the rate cut by RBI is a welcome step and good for economy.
"Government and RBI share views on economic outlook," he said, while adding that the move shows that Budget is conducive for non-inflationary growth.
Soon after the rate cut announcement, the BSE sensex soared to the historic 30,000 mark.