India Inc welcomes rate cut

New Delhi - Indian industry Tuesday welcomed the Reserve Bank of India's (RBI) move to cut some key lending rates by 50 basis points, citing that it will boost investments and sentiments of the economy.

The RBI in its annual monetary policy for 2012-13 has cut some key rates by 50 basis points in an effort to push industrial growth and stimulate economy -- a move that may also see interest rates falling on housing, automobile and commercial loans.

"The cut in repo rate by 50 basis points is a welcome move, which was much needed given that the GDP growth is moderating and IIP (index of industrial production) growth is declining," Chandrajit Banerjee, director general of Confederation of Indian Industry (CII), said about the RBI's annual monetary policy.

"The repo rate cut will provide the boost to investment as well as send a strong signal that turning around growth is of pivotal importance."

Announcing the monetary policy for the current fiscal, RBI Governor D. Subbarao said the repurchase rate was being cut by 50 basis points to 8 percent, which will automatically see the reverse repurchase rate also drop to 7 percent from 7.5 percent.

The repurchase rate is the interest the central bank levies on short-term borrowings by commercial banks. The reverse repurchase rate is the interest on short-term lending. A cut in these rates reduces the cost of accessing funds for lending institutions.

A cut in these rates also eases money supply in the system by making it more attractive for commercial banks not to park their funds with the Reserve Bank of India in the form of government securities, and instead lend it for commercial purposes.

Other industry body ASSOCHAM (associated chambers of commerce and industry of India) also welcomed the move, which it believes will give a push to economic growth.

"This has set the stage for cheaper lending costs and created an investment climate which could even possibly reverse inflationary pressures," said D.S. Rawat, secretary general, ASSOCHAM .

"High interest rates have been discouraging fresh investments and industrial production for nearly two years now. The RBI has acted vigorously to reverse the slowdown," Rawat said.