MUMBAI: Based on current policy settings, RBI expects inflation to be below 6 per cent as of January 2016. ‘’Key to further easing are data that confirm continuing disinflationary pressures,’’ Raghuram Rajan said in his note. ‘’Also critical would be sustained high quality fiscal consolidation as well as steps to overcome supply constraints and assure availability of key inputs such as power, land, minerals and infrastructure. The latter would be needed to ensure that potential output rises above the projected pick-up in growth in coming quarters so as to contain inflation.’’
Chanda Kochhar, MD & CEO of ICICI Bank, echoed RBI’s viewpoint. ‘’Together with the various initiatives being taken by the government, the rate cut would strengthen the positive momentum in the economy by lowering borrowing costs as the lower rate regime reflects in bank funding costs over time,’’ said Kochhar.
“We need to continue to address the issues impeding output and investment in key sectors to leverage this momentum for growth.’’
Lower rates will be key to any significant pickup in fresh industrial investment as also spending by consumers.
Demand for loans from banks has hovered around 10 per cent, which is one of the lowest in a decade. Lower rates may begin to encourage consumers and producers to seek bank loans.
“The extent to which banks transmit monetary stimulus will depend on the health of their own balance sheets and their assessment of credit risk conditions,’’ said Atsi Sheth, senior vicepresident at Moody’s Investors Service. “The incipient signs of an uptick in GDP growth should be supportive of an increase in lending as it generally is.’’
Keki Mistry, Vice Chairman & CEO, HDFC Ltd, said the move highlights RBI’s faith in governmental reforms such as fiscal consolidation and other policy measures. ‘’I expect rates to come down by about 75 to 100 basis points during the course of the year,’’ he said.