Demonetization may force RBI to cut rates; but with slow demand are MSMEs willing to borrow right now: Experts

New Delhi, Dec 7 (KNN) All eyes are set on the Monetary Policy Committee for the announcement on rate cut today as after facing the cash crunch post demonetization, the industry especially the MSME sector is expecting some relief in the lending rates to ease some of their burdens.

On one hand the experts feel that the demonetization decision may force RBI to cut interest rates by atleast 25 basis points, while on the other hand they feel that even with lower interest rates the MSMEs might not be willing to borrow at the moment due to less demand.

Talking to KNN, Manika Premsingh, Economist and Founder of Orbis Economics, said, “RBI has been reducing the interest rate in the recent past. In fact the new governor Urjit Patel, soon after he was appointed, slashed the interest rates which were relatively unexpected.”

She said, “Even in the MPC meeting this time, he is expected to reduce the rates further.

We have seen some reduction in the bank planning rate but it has not been conventional rate with the kind of interest rates we have seen in the RBI interest rate.”

On lending to MSME sector, the renowned economist opined, “It also depends upon how much our MSMEs are willing to borrow at present point of time. So if we look at the credit growth they are showing 6.5 per cent growth which is a declined from over 8 per cent.”

She said this is possibly not only because of the high interest rate but also due to relatively less demand in the system.

Dr. Yerram Raju, Economist and Adviser, MSE Facilitation Council, Government of Telangana, told KNN the lower interest rates will have a positive impact on the MSME sector provided they are passed on to the industry by the banks.

“Presently industries are starved of credit. There is demand for the credit, but banks have no staff to attend the credit queries. They are all busy due to demonetization,” he added.

Abnish  Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments Pvt. Ltd, said, “. Post black currency strike, most awaited and anticipated monetary policy is due on Wednesday, 7th December. We expect RBI to soften its lending rate by 25 basis points, anything above than expected could give boost to the market.”

Now, it is for the industry to wait and watch whether the Policy Review gets some good news for them or not.

Meanwhile, ahead of RBI’s monetary policy announcement the banks have begun to reduce interest rates as cost of funds continues to decline.

Bank of Baroda on Tuesday reduced its one-year benchmark lending rate by 20 basis points (100 bps = 1 percentage point).

On Monday, Bank of India had reduced lending rates and SBI will review its lending rates on Thursday. Last week, another state-run lender, Dena Bank, had reduced its MCLR by 10 basis points to 9.30% from 9.40% for one-year tenor. (KNN Bureau)