INSIDER – REPO RATE CUT - IMPACT

RBI announced a 100 basis points repo rate cut, four days ahead of the monetary policy announcements. Thus another step to infuse liquidity in system has been taken by the government. This also marks governments concern for growth and indicates towards the lowering of interest rates in coming times. Higher lending rates, which have affected various companies' growth, are expected to get respite in coming days.

 

CRR hikes in the start of calendar year followed by repo rate increments have led to drying of liquidity in October. Thus moves being initiated right now will take some time to get in the system.

 

Extent to which the deposit and lending rates come down still stands to be seen. Banks interest rates would depend on demand of credit, which still remains high. Also what more remains to be seen is the extent of hesitation the banks have towards the lending money to retail financing and how much banks are open with their funds. What percent of Retail financing, which was happening in the past, will be retraced will decide the extent of benefits industry will get in terms of credit availability as well as demand growth for sales.

 

Nevertheless both CRR and repo rate cuts are strong signals of turnaround in the monetary policy. An easing of policy is on cards in coming days.

 

To the events, both realty and Auto sector look with more optimism. Realty sector has been battered to major extent. While mortgage rates have been high leading to drop in demand, and liquidity crunch has been adding to woes. Many developers are seeing delay in projects and domestic debt has been too expensive. Auto stocks have also taken a beating for the losses of sales they suffered on account of higher rates of financing. Steps would thereby infuse a sigh of relief to the auto companies.

 

While impact of these measures may not be adequate to pull up stock prices in various sectors in immediate term, nevertheless they would definitely limit further hammering these stocks could have suffered. While concerns for growth numbers in near term may still remain, it is the recovery over a period of time that is being ensured.