With the easing of inflation rates and a growing global consensus to revive growths, Corporate India is betting on interest rate cuts to come sooner than later. And shrinking demand in recession-hit advanced economies is being cited to push for a case to revive growth fast.
There is also a growing case for a cut in consumer credit.
“As the situation now is, as I see interest rates coming down, lenders will work in concert to ensure credit flow,” KV Kamath, managing director and chief executive of the country’s second largest lender ICICI Bank, told delegates at the annual India Economic Summit organised by the World Economic Forum (WEF) and the Confederation of Indian Industry (CII) here on Sunday.
Kamath, who is also the CII president, said the signal repo (repurchase) rate should be reduced “by 200 to 300 basis points ( two to three percentage points).”
The Reserve Bank of India (RBI) has cut the cash reserve ratio—proportion of money banks have to park with the RBI—by 3.5 percentage points to 5.5 per cent,releasing about Rs 1,40,000 crore into the system over the last two months. The repo rate—the rate at which banks borrow from the RBI—has been cut by 1.5 percentage points to 7.5 per cent.
Rahul Bajaj, Chairman, Bajaj Auto, said that unfreezing of credit to consumers would act as a catalyst to arrest the downslide.
“The government should follow pro-growth policies. The government should consider reductions in indirect taxes like excise duties on some products to increase demand,” Bajaj said.
A fresh round of interest rate cuts could be announced over the next few days after inflation, fell to 8.98 per cent for the week-ending November 1, slipped to single-digit levels in data released last week after a 21-weeks, having hit a high of 12.91 per cent in August.
Deloitte Touche Tohmatsu chief executive officer Jim Quigley urged India’s business and government leaders to remain focussed on growth strategies, including infrastructure investment and developing and retaining skilled workers.
“The strong domestic consumer base and the ability to create jobs makes the outlook about India optimistic and an above 6 per cent growth in the current environment is very impressive,” Quigley said.
Rajat M. Nag, managing director-general, Asian Development Bank, Manila said that Asian economies would remain relatively unscathed due to the soundness of their financial systems.