Banks must transmit RBI repo rate cut: India Inc

New Delhi: With the RBI slashing the repo rate by 35 basis points, India Inc on Wednesday said its swift and full transmission by banks in the form of lower lending rates will be crucial to lift consumption and investment in the economy. The central bank reduced its growth projection for the Indian economy to 6.9 per cent for the current financial year, from 7 per cent forecast in June, due to a slowdown in demand and investments.

"With Wednesday's cut, the RBI has lowered the policy rate (repo) by 110 basis points in the current calendar year. The central bank has also kept liquidity in the surplus mode, and it is now critical for banks to move fast and transmit this ease in policy rate in the form of lower lending rates.

"Unless the transmission is swift and full, we may not see a change in the consumption and investment trajectory," Ficci President Sandip Somany said.

PHD Chamber of Commerce and Industry President Rajeev Talwar said the repo rate cut will help rejuvenate consumption and increase competitiveness of the producers with reduced cost of capital.

"However, at this juncture, transmission of the cut in repo rate with an effective reduction in lending rates by the banking sector would be crucial to materialise the benefits at the ground level," said Talwar.

"Going ahead, we expect repo rate to come down to 5 per cent in the coming quarters for enhanced liquidity and availability of credit to the industry especially to the MSMEs (micro, small and medium enterprises) with a significant reduction in the cost of capital," he added. The repo rate is the rate at which the RBI lends to banks.

According to the Indian Chamber of Commerce, reduction in the repo rate will transmit to cheaper loans which will boost the economy at large, especially sectors such as real estate and automobiles, and spur the latent consumer demand in these segments. Higher disposable income in the hands of consumer will also fuel the growth in domestic demand going forward.

In a scenario where there is pressure on GDP (gross domestic product) growth, the move will spur investment and boost consumption activity in the economy.