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Indian industry cheers RBI's rate cuts

Indian industry cheered the central bank's decision on Friday to lower interest rates, saying it would help ease the country's industrial slowdown.

The Reserve Bank of India (RBI) said it was cutting its benchmark bank rate to 7.5 per cent from 8.0 effective Saturday.

The RBI also cut banks' cash reserve ratio (CRR) by 50 basis points in two stages of 25 each to 8.0 per cent from 8.5.

"This timely measure will help contain the industrial slowdown to some extent as it will enable corporates to have an easier access to capital at a cheaper cost," the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement.

Leading industry body, the Confederation of Indian Industry (CII) said the funds released from the CRR cut would provide "the much needed fillip to industry especially at a time when it is in the midst of a slowdown".

The government and the central bank have been under pressure to cut rates to prevent the industrial slowdown from taking roots.

The country's industrial production growth slid to 3.4 per cent from 8.1 per cent a year earlier, making it the poorest monthly performance in more than two years.

The RBI said the cut in CRR would free 41 billion rupees for lending by banks.

Corporates are hoping that the RBI's move would force banks to lower lending rates.

"It will send a clear, positive signal to the market of the need for lower interest rates. It would also lower costs for companies who have a lot of borrowings," D.D. Rathi, chief financial officer of Grasim Industries told Reuters.

Pravin Kadle, senior vice-president for finance at Tata Engineering and Locomotive Company Ltd,said he expected an easy interest rate scenario over the next three to four months and firms with high interest burden benefiting substantially.

"In Telco's case, we paid interest of around Rs 4 billion in the year ended March 2000. In 2001-02, we hope to see at least a reduction of 150 million rupees if banks follow by cutting their rates," Kadle said.

But there was no clue yet if banks would take cue from the RBI signal.

Big banks charge 12 per cent for their prime customers.

Speculation has circulated that the central bank would cut rates, increased last July to ward off pressure on the rupee, after US Federal Reserve lowered rates last month.

"This measure was almost expected after the Union rate cut in the US. RBI perhaps was waiting for the right opportunity to act," the FICCI statement said.

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