A cut in the policy rate by at least 15-25 basis points would have been timely
| IOP Desk - 06 Feb 2020
NEW DELHI, 6th February 2020: Commenting on the monetary policy announcement by RBI, Dr. Sangita Reddy, President, FICCI said, “RBI’s decision to hold on to the policy rate comes on the back of inflation moving beyond the central bank’s comfort zone. While the outlook for inflation remains uncertain, FICCI is of the view that this is largely a supply-side phenomenon. As growth in the industrial sector and the economy is still not on a firm footing, greater support from the central bank by way of a cut in the policy rate by at least 15-25 basis points would have been timely.” “While the RBI has lowered the repo rate by 135 basis points since February 2019, the transmission of these rate cuts remains slow and the weighted average lending rates of scheduled commercial banks continue to remain high. The lending rates must move down if demand is to be supported in the economy,” added Dr. Reddy. "The recently announced budget has tried to do its bit to give an impetus to investments and demand. RBI’s support to this effort of the government could have been a major sentiment booster" said Dr. Reddy. Besides the cost of credit, the flow of funds to the commercial sector is an equally important area to look at. The NBFC sector remains impaired and will take some time to recover. Banks are circumspect with regard to lending as they deal with existing NPA's and fear of vigilante action against their management - especially for larger corporate loans remain. Further action to repair the larger and less fragile NBFC's would also be a big help as they can revive credit in the system.

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