Economy can now stand on both feet

The banks had earlier been citing the high savings rates as an excuse for not cutting rates.

The pre-Diwali gift of a quarter per cent rate cut by RBI Governor Urjit Patel will hopefully translate into cheaper loans by banks. Mr Patel himself feels that by the next two quarters (October-December and January-March 2017), rates will come down further as savings rates are now near market rates. Rates have drifted lower after the new method of calculation in money markets but are yet to be felt by consumers. There was a general feeling that there would be a rate cut as this was the first policy announcement after the monetary policy committee (MPC) was formed to aid the decision-making process, with inputs from all quarters. There was unanimity among members of the committee.

The soft stand taken by Mr Patel has come as a pleasant surprise given that he was considered a hawk against inflation. To that extent, this cut is a departure from the earlier regime under Raghuram Rajan. So whether it was the influence of the MPC or not on Mr Patel is not really relevant. What is of real interest to the consumer is cheaper loans. The banks had earlier been citing the high savings rates as an excuse for not cutting rates as they feared losing deposits. But now there is no such excuse available. So a glimmer of achche din in the form of lower rates is expected as the pressure on banks eases.

The government, too, has done its bit by announcing a number of measures to tame food inflation and has been lucky to have a good monsoon that will enable an efficient management of the supply side. The impact of a drop in food prices was already seen in the easing of food inflation. Corporate India has raised '1,37,000 crore through the commercial paper route as rates trended lower, and this will hopefully nudge them to start investment. At present the private sector’s contribution to growth is negligible, and it is the consumer who is pushing demand. Also, thanks to an adequate monsoon, the harvest is expected to be good. It means putting more purchasing power in the hands of rural consumers, which in turn will boost the fast-moving consumer goods sector. As one analyst said, the economy can now stand on both feet (urban and rural). It’s now up to companies in these sectors to woo the citizens of Bharat. So that they can join the mainstream of economic growth.

( Source : Deccan Chronicle. )
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