Finance Ministry today said RBI’s policy rate cut will provide a “good stimulus” to the economy and encourage banks to reduce lending rates. “RBI actions today are very welcome. Obviously we believe that the rate cut which has been effective would be very good stimulus for the economy,” Minister of State for Finance Jayant Sinha told reporters here.
The Reserve Bank in its first bi-monthly monetary policy review today cut interest rate by 0.25 per cent and introduced a host of measures to smoothen liquidity supply so that banks can lend to the productive sectors and indicated accommodative stance going ahead.
“Some of the banks have already reset their interest rates taking into account the marginal cost of lending and done some amount of reduction of rates consequent to all these measures and consequent to RBI’s announcement today the banks will perhaps need to do some more transmission of reduction of policy rates of RBI,” Economic Affairs Secretary Shaktikanta Das said.
RBI Governor Raghuram Rajan, while unveiling the policy, said that banks have already cut interest rates by 0.25-0.50 per cent on account of shift to Marginal Cost of Lending Rate (MCLR) and expressed hoped the they will effect more cuts following the policy announcement. Sinha said the Budget has taken various fiscal and reform initiative, thus creating space for monetary easing.
“In coordination with RBI we really have to amplify both fiscal initiative and monetary initiative that are now in the pipeline. That really is what we are working in right now as we do so we will provide the boost to the economy,” he said. Das said India needs to become a low cost economy both in interest rates and in other transactional costs.
“We have already highlighted that the introduction of GST will significantly bring down transaction cost and the cost of manufacturing. We are also looking at low interest rate regime so that there is more investment, in manufacturing, infrastructure,” he said.
Das said that the government has been taking several measures to facilitate private sector investment and has announced steps towards simplification of procedures with regard to FDI reforms.
“The effort of the government is to provide a policy framework where private sector investment will pick up. Substantial outlay for agricultural sector, we do hope, will add to the rural demand which accounts for the considerable portion of our domestic demand. With a good monsoon hopefully this year I think there should be a revival of domestic demand also,” he said.