IMC lauds RBI’s rate cut move

The MPC cuts the repo rate by 25 bps to 6.25 per cent. IMC lauds the move, which is based on the fact that the headline inflation is lingering below the central banks’ projections. The crude oil prices are stable, domestic growth momentum is slowing and thus needs a support in rate cut. The global rate cycle is peaking out, which gave enough room to MPC to go for rate cut. IMC however wishes that to make a mark effective, the repo rate should have been reduced by at least 50bps. In a major move to increase agri output, RBI has enhanced the collateral free agri loans from Rs 1 lakh to Rs 1.60 lacs which will benefit small farmers. Given the high CD ratio and a tight liquidity conditions, it is to be seen whether banks would transmit these rate cuts to borrowers. RBI is confident to handle the liquidity crunch, if any, through OMO. IMC feels the transmission of the rate cuts by banks, would be dependent on every banks’ cost of operations and risk perceptions of the borrowers, and thus cannot be a uniform rule. It has revised norms on risk exposure to NBFCs and is also planning to set up an umbrella body for the urban Coop banks.