As they say ‘Rome was not built in a day’

Author: Anurag Bhullar

Fall in the repo rate by 100 basis points has been well received by the market participants; however the benefits expected to come with it remain questionable. It seems the anticipated positive impact will take one-two months to surface. The reason for the delayed response, as unleashed by GVK Group’s George Issac is the non-sustenance of the liquidity in the market.

Also, the chances of the relief (which banks draw out of the lowered repo rate) being transferred to the customers are in shadows. Presently, this re-purchase rate or the rate at which RBI lends to other Banks stands at 8 percent. This recent move is directed to push banks to lend more to the needy ones, thereby contributing to the improvement of liquidity position of the nation.

Hero Honda Motors, CFO Ravi Sud feels that the impact of RBI’s step will be negligible for some time as far as the two-wheeler industry is concerned. However, ED, Bajaj Auto, Sanjeev Bajaj feels that the sluggish consumer finance business of Bajaj group will show signs of revival with this repo cut.

In usual conditions, similar dips in CRR and repo rate would have fixed the liquidity crunch but RBI is confronting several other problems like that of handling inflation and depreciation of rupee that improvements have not occurred in similar lines.