INDIA INC HAILS SURPRISE RATE CUT BY RBI

Cheering the surprise rate cut by RBI, India Inc today said the move sends a positive signal to investors and will help boost growth by lowering the cost of capital. 

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CII Director General Chandrajit Banerjee said "Coming on the back of a growth-oriented Budget, the unexpected cut in headline interest rate by the RBI sends a huge positive signal that the central bank and the government are working in tandem to provide a robust scaffolding to growth, even while not losing sight of inflation, which has now been made explicit in the objectives of the RBI."

Encouraged by softening inflation and fiscal consolidation roadmap by the government, RBI today slashed key policy (repo) rate by 0.25 per cent to 7.5 per cent, the second such surprise rate cut outside regular policy review in less than two months.

"Coming on the back of reform measures initiated in the Budget, today's rate cut by RBI is a great booster for the economic growth, which seems to be the area of focus for the central bank.

"It will surely boost the morale of the consumers as also lower the interest costs of the industry," Assocham President Rana Kapoor said.

The cut in the policy rate by RBI will help in lowering interest rate for individual and corporate borrowers.

It will thus make home, auto and corporate loans cheaper. However, cash reserve ratio (percentage of deposits kept in government securities) has been left unchanged at 4 per cent.

Inflation measured by the wholesale price index (WPI) was at 0.11 per cent in December. The data for November was revised downwards to (-)0.17 per cent, from the provisional estimate of zero.

However, food inflation witnessed a rising trend in January and scaled a six month high of eight per cent, according to the government data released on Monday.

Source - Mumbai Mirror

RBI CUTS RATE BY 0.25%; HOME, AUTO LOANS MAY BECOME CHEAPER

Home, auto and corporate loans are likely to cost less after RBI today cut interest rate by 0.25 per cent for the third time this year to spur investment and growth but hinted there may not be any more cuts in the near-term sending stock markets into a tizzy. 

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Yielding to demands of Finance Minister Arun Jaitley and India Inc, RBI Governor Raghuram Rajan "front loaded" the repo rate cut despite worries of below normal monsoon and its impact on prices. 

The Governor asked banks to follow suit and pass on the rate cuts -- 0.75 per cent since January -- to individual and corporate borrowers. 

Most bankers felt that with today's rate cut RBI has provided space for lowering lending and deposit rates. Public sector Allahabad Bank became the first to reduce the lending rate by 0.3 per cent. 

RBI cut the repo rate (short-term lending rate) from 7.5 per cent to 7.25, but left all other policy tools like cash reserve requirement unchanged at 4 per cent and Statutory Liquidity Ratio (SLR) at 21.5 per cent. 

Rajan lowered projections of the economic growth as measured by GVA (gross value added) to 7.6 per cent from 7.8 per cent estimated in April due to global factors and likely impact of below normal monsoon. 

At the same time, inflation still remains a worry for the central bank as it expects price rise to remain subdued till August before rising to 6 per cent by January 2016. 

It asked the government to put in place a "contingency plan" to manage the impact of low food production on inflation, mainly because of expected lower than normal rains. 

The other concern for the RBI is rising crude oil prices. Since the last policy in April, the crude oil prices have witnessed an increase of 9 per cent. 

Soon after the policy announcement, the BSE Sensex plunged by over 400 points. The markets, however, later recovered slightly.

Source - Mumbai Mirror 

Borrowing cost for corporates goes up despite RBI's rate cut

MUMBAI: The waiting game for companies planning to raise long-term funds went awry after RBI's policy guidance made investors jittery, forcing bond yields to rise. Borrowing cost for corporates has gone up even after the interest rate cut by the Reserve Bank of India, the third time this year.

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The state-owned Steel Authority of India (SAIL), which tapped the bond market a day after RBI's policy announcement, has offered about 12 basis points higher interest rate than it would have paid had it raised money a week ago, dealers said.

SAIL mopped up Rs 420 crore at 8.35% with a three-year maturity; the company had offered 7.95% for a similar issuance in April. Although overall yield spikes forced higher funding cost, RBI's latest policy tone pushed it up further with no more rate cuts in sight. This week, two subsidiaries of Power Grid Corporation, another public sector undertaking, will float bonds. Besides, regular issuers, including Power Finance Corporation and Rural Electrification Corporation, may also hit the market. The interest rates these organisations will offer would also be higher, three dealers told ET.

Source - Times Of India