RBI Governor Shaktikanta Das on Thursday said that the central bank would make sure that transmission of reduced repo rate would be faster and higher.

The comment came amid reluctance by banks to pass on the benefits of lower lending rate. 

The central bank has cut the repo rate by 0.25 per cent, the third in a row in 2019, taking the total to 0.75 per cent or 75 basis points. The move is expected to stimulate economic growth by making loans cheaper for business expansion and consumption.

The combined effect of the three rate cuts is set to make auto and home loans cheaper thus supporting the two key slowdown-hit sectors.

Both the auto and real estate sector are key to growth and employment in the economy. The year-on-year growth in car and bike sales have been heading southward and inventory level of real estate firms remain high.

But given the reluctance on part of banks to pass on the benefits of lower interest rate to end-borrowers, the monetary policy experts believe that the move is unlikely to have any instant results.

Fitch group firm India Ratings and Research (Ind-Ra) in a statement said that transmission of rate cut into economy has emerged as a bigger challenge in recent times.

"It is well known that the impact of the monetary policy on the Indian economy is felt with a significant lag, but the situation at the current juncture has become further complicated due to the ongoing crisis in both -- the banking and the shadow banking sectors," it said.

While banks are struggling with high NPAs, non-banking finance companies (NBFCs) are struggling with solvency issues leading to credit freeze.

Published On : 06-06-2019

Source : Sme Times