Click to play videoNew Delhi: India and the world ushered in 2009 with muted celebration with the fear of recession and slowdown weighing on everyone's mind.
But on the second day of the New Year, the Indian government came up with a stimulus package the focus of which is to provide more liquidity and cut the cost of funds.
The Reserve Bank of India cut the reverse repo cut by one per cent bringing it down to four per cent. The repo rate has also been cut by one per cent bringing it down to 5.5 per cent.
Cash reserve ratio has also been cut by 50 basis points to five per cent and this move will free more money to lend and small housing loans will continue to be the focus.
"The general increase in liquidity and softening of interest rates will have an impact for finance on housing," Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, said while announcing the package in New Delhi on Friday.
All the moves mean banks have more room to cut interest rates on the EMIs and deposit rates.
"I think these are very good measures, very strong measures. Indeed this is a clear indication that softening of interest rates will take place further," said ICICI Bank CEO-designate Chanda Kochar.
The other big focus is on finding money for the infrastructure projects that will keep the economy on the growth track.
External commercial borrowings has been made easy for non-banking finance companies (NBFC) that lend to infrastructure companies and Rs 30,000 crore tax free bonds are also being issued for infrastructure funding.
Integrated townships also can get external commercial borrowings.
"We need to complement the government for being able to do two announcements together - fiscal and monetary. This is something that we in the industry have been asking for a while," Sunil Munjal, former president of Confederation of Indian Industries, and Chairman of Hero Corporate Service, said.
With the package the government is hopeful of seven per cent growth and there won't be another package till June.
Is it more a sentiment booster than a package that can stimulate? Only the months ahead can tell.
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