The 25 basis points reduction in the repo rate, even while continuing with the neutral approach, would go a long way in lifting sentiment among businesses. The monetary policy stance taken by the RBI would provide a fillip to growth especially at a time of benign core inflation print and tepid private investment. Having said so, CII feels that a steeper cut in interest rate would have been more in consonance with market realities.
It is heartening to note that the government and the RBI are working in tandem to resolve the stressed asset problem which would restore the credit flows to industry. The resumption of rate easing cycle, which is anticipated to bring down short term rates, could motivate industry to contemplate investing in projects. A cut in rates would revive demand in sectors such as capital goods and in the housing and infrastructure space. It would also spur growth in the rate sensitive consumer durables sector. CII is hopeful that the rate easing cycle would continue going forward to provide a boost to demand at a time when favourable monsoons augur well for keeping the inflation trajectory down.