Further rate cut of 50 basis points expected in 2015, says HDFC CEO

Welcoming Reserve Bank of India's (RBI) surprise rate cut on Wednesday, top bankers and industrialists said the central bank may need to further ease key policy rates by 50-75 basis points in 2015 to revive investments, especially in the infrastructure space.

Some bankers also hoped that RBI may go for further easing in key policy rates during its scheduled monetary policy review on April 7, as inflation remains low and the government has committed to continue the fiscal consolidation programme.

Keki Mistry, Vice Chairman and CEO of HDFC, said that the central bank may cut the repo rate further by 50 basis points in 2015.

"The rate cut this morning was pretty much expected. At the start of 2015, we were expecting about a 100-bps reduction in interest rates in the course of the calendar year. Of that 100 bps, we have now seen 50 so far and I expect the balance 50 bps to happen during the remaining part of the year," Mistry added.

The HDFC CEO, however, said it was difficult to exactly time the rate cuts.

L&T chief AM Naik also said that the rate cut move by RBI was surprising in terms of timing.

Stating that just 50 basis points rate cut, announced so far in 2015, was not viable for most infrastructure projects to take off, Naik said he expected another 50 bps cut in interest rates in next 3-4 months.

Noted economist Jim Walker tweeted that another 50 basis points rate cut was required in April, while HDFC Bank's Chief Economist Abheek Barua said there may be further 50-75 basis points rate cut in 2015.

Minister of State for Finance Jayant Sinha also said that room for further easing of rates remains in place while Wednesday's rate cut decision of the central bank should give a boost to the economy in the near term.

The Reserve Bank on Wednesday surprised markets by reducing the repo rate - the interest rate at which it lends to banks, by 0.25 per cent to 7.5 per cent. This is the second time in two months that the RBI has cut interest rates outside the regular policy reviews.

On January 15, the apex bank had cut the repo rate by 0.25 per cent to 7.75 per cent. Notwithstanding the fact that the fiscal deficit is a little higher than what was originally expected, inflation expectations continue to remain low and therefore RBI appears to have been comfortable in terms of cutting rates.