New Delhi, April 3 (IANS) While 25 basis points (bps) cut in the interest rates by the RBI in the monetary policy is imminent, the real impact on lending costs will be felt if the apex bank goes for at least a 50 bps cut, says a CEO survey conducted by Assocham ahead of the monetary policy review on April 5.
"The RBI has all the building blocks in place to go in for re-aligning the repo rate to 6.25 percent on April 5 when it reviews the credit policy," Associated Chambers of Commerce and Industry of India (Assocham) said.
The repo rate currently stands at 6.75 bps.
As many as 82 percent of the 110 CEOs across different sectors surveyed by Assocham said that a rate cut of 25 bps would be only a baby step and would not create impact adequate enough to trigger a big positive business sentiment.
"The retail inflation at 5.18 percent is well below the RBI target while the government has delivered in terms of financial discipline," a majority of the CEOs said in the survey.
For the 2015-16 fiscal, the finance ministry on Friday said it had contained fiscal deficit at 3.9 percent of the GDP and targets it at 3.5 percent of the GDP during 2016-17.
The government has also taken a bold decision to lower interest rates on the small savings and the Employees Provident Fund (EPF) contributions so that the banks can operate on a level-playing field, the survey said.
Though the Reserve Bank of India (RBI) slashed the benchmark rate by 125 bps last year, the transmission by the banks was much lower. As many as 68 percent of the CEOs in the survey said the banks could have done more by way of rate transmission.
With introduction of the new Marginal Cost of Funds based lending rate (MCLR), the transmission of rate is being effected at least to the extent of 10 basis points.
With expectations of normal monsoon rains, the revival in agricultural production will bring about a further uptick in the economic environment, it said.
Over and above the repo rate, the survey said that industry leaders want the RBI to infuse more liquidity by way of easing the cash reserve ratio by 50 bps, which again will lead to easing of the lending rates.
In the policy review on April 5, the RBI is also expected to come out with further measures to deal with the non-performing assets (NPAs).
