Published on 8/02/2019 4:31:20 PM | Source: HT Media

Opinion | Rate cut is a signal to ease money policy environment`

Posted in Top Stories| #RBI #Banking Sector #Wealth

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The 25 basis point rate reduction is a signal to easy money policy environment. Inflation within RBI’s threshold has been a significant trigger for the recent monetary policy stance . Slowing growth in advanced economies and in majority of the emerging economies have rekindled the usage of the monetary policy levers to strengthen the growth of Indian economy. The monetary policy stand also could benefit the sentiments of poll bound India. If inflation continues to be soft and within targeted range , RBI could consider at best a further 25 basis point reduction further. Small and medium sized enterprises in the Engineering and construction space could be encouraged to access the credit markets due to softening of interest rates. Credit flow to large corporates by and large have factored in the 25 basis point reduction in the rates.

“Given the global slow down and the trade pressures, the need for every major economy would be to produce goods and services in the most cost efficient manner. Competitiveness would be the most enduring defense of trade turf in these times. Economies with under-utilized capacities would be at an advantage as compared to the rest. Ability to increase production could ensure cost containment within a given system. Protective tariffs and geo political stances will continue to cast their shadows. In the context of India, stable and moderate oil prices would be a big swing factor. Stimulating both investment and consumption would be important for the domestic markets in India. Rationalisation of tax rates and facilitating ease of tax compliance will improve the tax coverage and augment the flow of tax receipts. Governments thrust to strategic investments in the Banking, Infrastructure and Defense segments needs to be supported. Ensuring liquidity at affordable rates while strengthening the credit evaluation system will trigger credit flow to the deserving sectors. Progressive policies which facilitate investment and return on investment are critical components of the economic growth formula. Regulations and the Regulators should recognize the opportunity that India and its entrepreneurs have to increase the economic growth trajectory and should work in tandem to take advantage of the country’s strengths."

R Shankar Raman is CFO and whole time director, L&T