‘RBI policy boost to economy not enough’

Sunday, December 7, 2008 at 2:12 am under Business News ‘RBI policy boost to economy not enough’

Home, auto and industrial loan seekers are all set to enjoy lower interest rates, with Reserve Bank of India (RBI) on Saturday (December 6) announcing a liberal monetary policy to boost the economy, but the industry said it wasn’t enough and demanded more stimulants from the government.

The central bank made an unscheduled cut of one percentage point in the short-term rates at which it lends (repo) and borrows (reverse repo) from banks and earmarked Rs 11,000 crore towards refinancing facility for the Small Industries Development Bank and National Housing Bank.

Although many bankers welcomed the RBI package saying it was a signal for south ward interest movement, only Yes Bank cut its prime lending rate by 50 basis points to 16.5 per cent with effect from Monday.

More banks are expected to follow suit. To help banks cut cost of funds and bring down lending rates, RBI has been taking measures from October and all of these would help release a massive Rs 3,00,000 crore into the banking system.

Besides, RBI also classified housing loans below Rs 20 lakh as lending to priority sector a move that would help banks cut rates for the realty sector, which perhaps has been hit the hardest in this economic downturn. It is our expectation that the banks will take a signal from the rate cuts,” RBI Governor D Subbarao said.

The liberal monetary policy stance has been prompted by the lowering of inflation, which the Governor said would ease further due to reduction in petrol and diesel prices. Although the three apex chambers of industry — FICCI, CII and Assocham — welcomed the RBI package, they said it wasn’t good enough and wanted immediate announcement of more stimulus for sectors like auto, housing, exports and infrastructure.

With most banks not coming forward to reduce interest rates, Economic Affairs Secretary Ashok Chawla said: “This (RBI rate cut) should give a clear signal to the banks and those who have not taken the signals earlier. “The central bank could have gone a step further by cutting the CRR and SLR rates to send a stronger signal of liquidity support to corporates,” Ficci Secretary General Amit Mitra said.

“We now expect some fiscal stimulus from the government, which would help complete the package,” CII Director General Chandrajit Banerjee said. “Cut in rates is not enough… situation calls for drastic fiscal measures,” Assocham President Sajjan Jindal said. The government is likely to announce on Sunday a Rs 17,000 crore stimulus package for auto, housing and exports sectors.

In fact, RBI, which classified housing loans up to Rs 20 lakh as lending to priority sector, said that such special treatment would boost lending to the housing sector. ICICI Bank Joint MD Chanda Kochhar said, “We have brought down interest rates for housing loans below Rs 20 lakhs.”

Subbarao said the apex bank is also “working on a refinance facility for the National Housing Bank (NHB) of an amount of Rs 4,000 crore,” as part of the Rs 11,000 crore facility for SIDBI and NHB. Today’s package from RBI is aimed at furthering economic growth, as Subbarao said: “There is evidence of economic activity slowing down, real GDP growth has moderated in the first half of 2008-09.

“Industrial activity, particularly in the manufacturing and infrastructure sector is decelerating… recent data indicate that the demand for bank credit is slackening despite comfortable liquidity. Higher input costs and dampened demand have denied corporate margins, while the uncertainty surrounding the crisis has affected business confidence.”

(With inputs from agencies)

( This post is from an independent writer. The opinions and views expressed herein are those of the author and are not endorsed by APakistanNews.Com.)

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‘RBI policy boost to economy not enough’

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