Would have preferred 50 bps cut in repo rate: Adi Godrej

After the Reserve Bank of India (RBI) cut the repo rate by 25 basis point (bps) in its monetary policy on Tuesday, mixed views have been pouring in from India Inc. In an interview to CNBC-TV18, Adi Godrej, chairman, Godrej Group and Confederation of Indian Industry (CII) president said that a 50 bps cut in repo rate would have been preferable because the RBI needs to stimulate growth at this time.

"No cut in cash reserve ratio (CRR) was disappointing because liquidity creation is important and many banks have stated that it will be difficult for them to pass on this repo rate cut as interest rate reductions to industry" adds Godrej.

Below is the verbatim transcript of Adi Godrej's interview on CNBC-TV18 Q: The Reserve Bank of India (RBI) has acted as per expected lines cutting the repo rate by about 25 basis points (bps), but it has also said that it has limited room for further action from hereon. What will be the impact of 25 bps cut because the banks do not suggest any significant transmission?
A: I welcome the 25 bps cut in the repo and the reverse rate, but it would have been preferable if it was a 50 bps cut. This is because we need to stimulate growth at this time. No cut in cash reserve ratio (CRR) was disappointing because liquidity creation is important and many banks have stated that it will be difficult for them to pass on this repo rate cut as interest rate reductions to industry. So, we would have preferred a CRR cut at the same time. Q: Does this change anything on the ground for corporate India because if banks will not pass the cut to consumers, will this cause a fillip to the capex cycle that continues to be stagnant?
A: The reduction in repo rate will have some benefit to investment decisions. Overall, if there was steeper repo rate cut and cash reserve ratio (CRR) was also cut by at least 25 basis points, it would have led to very clear signal of trying to accelerate growth and investment. Q: With regards to RBI’s credit policy overshadowed by developments on the political front with the DMK threatening to withdraw support from the government, how confident are you about the reform agenda continuing? In terms of the alliance with political partners, it will be very difficult for this government to push through with any big ticket reforms, do you think government’s reform agenda will face a setback?
A: The reform agenda will continue, the government is committed to that. However, the political process leads to situation where the government losses a majority in parliament and a vote is taken on something or the other and that could be a problem. Currently, with the support that the government enjoys from the parties in Uttar Pradesh, they will continue to have a majority. Let us see how it pans out, I also saw some statements from the Congress that they hope to sort out this issue in a day or two.