India Inc on Thursday expressed disappointment over the Reserve Bank of India’s surprise decision to stand pat on interest rates at a time when consumer demand has slackened amid an economic slowdown.
“A reversal in the declining economic growth trajectory is clearly the need of the hour and all steps should be taken to bring about this change," said Sandip Somany, president at Federation of Indian Chambers of Commerce and Industry (FICCI) .
He said a rate cut was “important for boosting the sentiment in the market and amongst investors" and the industry association was hoping for “a bolder action on this front." Somany added that rates need to be cut by another 75-100 basis points fast to boost economic growth.
The surprising unanimity in members of RBI’s Monetary Policy Committee on holding rates probably “reflects discomfort on the high CPI inflation even though core inflation remains low," said Mihir Vora, director and chief investment officer at Max Life Insurrance, adding that the central bank probably wanted to wait to see the impact of its previous rate cuts.
Vora said there is less chance of a rate cut in February “as inflation is expected to pick up in the coming months" due to a low base impact and higher food prices, especially vegetables, as well as telecom tariff hikes. But, the central bank could still lean towards a 25 basis points rate cut in February if there was a sustained growth slowdown, Vora said.
If the central bank had delivered on the widely-expected rate cuts, then the real estate sector would have got a boost, said Anuj Puri, chairman of ANAROCK Property Consultants.
But he added that a rate cut alone would have been insufficient to drive up demand in the moribund real estate sector. “The previous rate cuts throughout 2019 had almost no perceptible impact on residential sales," Puri said.
“In the present scenario, only the combined effect of lower interest rates coupled with other measures such as a cut in personal taxes – reportedly being considered by the FM – can actually stimulate residential sales out of their current lethargy," he said.
Meanwhile, a senior executive of the pharmaceutical industry said RBI’s decision won’t affect them much.
“For pharma, a lower growth rate, weak earnings of people and unemployment hits some segments like vitamins and food supplements, which in turn affects over the counter sales," R.C. Juneja, chairman and executive officer, Mankind Pharma. “Over the last couple of years, there has been some effect on us from demonetization and gods and services Tax,’ he said. "But we have worked hard to (push our products) and that has helped."
A rate cut by the central bank alone would not spur consumption or investment demand, said Sunil Kumar Sinha, director of public finance & principal economist at India Ratings & Research (Fitch Group).
“However, by stating to continue with the accommodative stance and (that) there is monetary policy space for future action, RBI has clearly indicated that rate cut cycle has not ended but will be contingent upon domestic and global developments."