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Repo rate cut to perk up markets - AxisDirect
AxisDirect-O-Nomics
Aug 03, 2017 | Source: Indian Express
Slashed Repo Rate to Perk up Market
The Reserve Bank decision to slash repo rate by 25 basis points to 6 per cent will perk up the market sentiments and enable a gradual recovery in credit cycle, bankers and analysts said. Senior bankers said, “The RBI decision to cut repo rate was a welcome move and will perk up market sentiments. The policy commentary was nuanced and balanced indicating upside risks to inflation have waned, whereas growth impulses in industry and services are weakening. We are hopeful that this measure should enable a gradual recovery in credit cycle with a revival of demand.”
The prudent approach of the central bank in reacting to incoming data in a calibrated manner will reinforce the confidence amongst global investors. “A number of regulatory and developmental measures like tri-party repo for corporate bonds and enhanced limits for foreign investors using the futures markets have also been announced. The formation of a high-level committee to address the information asymmetry in the credit markets will help in enhancing transparency and information availability,” experts said.
“The cut in repo rate by the RBI is pro-growth. It might lead to banks reduce their lending rates, thereby, giving an impetus to credit growth, which has been down compared to last year. If the transmission were to happen quickly, consumers are in for a good time with EMIs likely to come down, and lenders likely to come up with festive season offers on loan rates in the ensuing months. Banks could leverage this opportunity to broad-base their credit consumer base further,” said expert from a leading Credit Information Company.
Another senior banker commented, “Resumption of easing cycle with RBI’s calibrated 25 bps rate cut after a hiatus of 9-months is a welcome move. The reduction clearly acknowledges downside to inflation pressures. India’s inflation has undergone a structural shift, with the emergence of ‘new normal’ at lower levels.” The RBI’s decision to set up a high level task force for creating a transparent, comprehensive and near-real-time public credit registry and comprehensive credit development reports by the credit information companies will help banks in credit assessment and risk pricing and make the credit market more efficient.
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