Interest rate cut on the radar | business | Hindustan Times
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Interest rate cut on the radar

Though the political leadership is busy with elections, the bureaucracy, on instructions from the Prime Minister, is on an urgent drive to take steps aimed at reviving the sagging economy.

business Updated: Apr 01, 2009 22:49 IST
HT Correspondent

Though the political leadership is busy with elections, the bureaucracy, on instructions from the Prime Minister, is on an urgent drive to take steps aimed at reviving the sagging economy. The Cabinet Secretary, K M Chandrasekhar, will meet industry chambers and chiefs of public sector banks on Thursday to discuss the broad contours of an industrial revival strategy as India Inc finds itself caught between tight bank credit and falling profits.

The meeting comes barely five days after Prime Minister Manmohan Singh told industry captains that there was scope for a further cut in interest rates, particularly by private banks.

India Inc, caught in an attack of sluggish demand and dipping confidence, has sought easier and quicker access to bank funds to keep planned expansion projects going.

Importantly, the meeting with heads of banks will take place shortly after most government-owned banks reduced their benchmark lending rates by about 0.5 percentage points effective from today.

With inflation falling to historic low levels and expected to turn negative in the coming weeks, there were expectations that the Reserve Bank of India (RBI) could slash interest rates further.

“I would not be surprised if the RBI reduces interest rates much before the monetary policy towards the end of this month,” a top industrialist, who would be attending the meeting, told HT while requesting anonymity.

The RBI has cut the repo rate —the short term rate at which banks borrow from the central bank—by four percentage points to 5 per cent in the last six months, signalling a further reduction in the final borrowing rates.

Industrialists said there was a need to bring down cost of borrowing.

“The enabling atmosphere created by the fall in the inflation rate provides enough space and maneuverability for further monetary policy action. The key interest rates should be brought down by another 1 percentage points,” said the President of the Federation of Indian Chambers of Commerce and Industry, Harshpati Singhania.

Last week, the Prime Minister in a meeting with industry leaders said that while public sector banks have reduced the prime lending rates in the last three months between 150 and 200 basis points ( 1.5 to 2 percentage points), other scheduled commercial banks were yet to respond in equal measure.