To begin with, Repo Rate is precisely the rate at which the Central Bank of the country lends money to all commercial banks during the event of shortage of funds.
In a recent financial move the RBI Governor, Dr. Raghuram Rajan announced a cutback on the current repo rate from 7.25 percent to 6.75 percent, which was brought into effect immediately on 29th September, 2015. This repo rate deduction of 50 basis points has been more than welcomed by the textile industry of the country, simply for the reason that this cut will majorly benefit capital-intensive industries.
The first and the foremost reason for welcoming this cut is the fact that it will now encourage as well as quicken the process of investment in the textile industry, given the fact that the cost of acquiring funds will come down. This was earlier a major hurdle, since the extreme burden of the high interest rates cancelled out the leverage gained by the lower cost of production. All in all, this cut will definitely help in improving the competitiveness of the industry, as against its international counterparts.
Secondly, this repo rate cut is seen by many as a bold move towards an overall economic growth of the nation’s economy, which undoubtedly makes it a positive step. Moreover reduction in interest rates will bring in more investments and make the 'Make in India vision a reality. In addition, this step on the part of RBI, also to some extent clarifies that the current inflation is not seen as a risk, which is again is a huge relief to all the major industries of the nation, especially when the overall global economic scenario is still just recovering.
The benefits of the repo rate cut do not end here. In fact, since the rates have been slacked off for a total of 4 times in the recent past, it has led to an increase in the markets’ liquidity. This in turn, increases the spending capacity thereby resulting in a greater demand, thus proving beneficial for the overall growth of the economy. It will also have a big effect in strengthening of the textile industry too.
That being said, it is now all in the hands of the commercial banks, to pass on the interest-rate benefits to their customers, in order to churn the maximum possible leverage of the repo rate cut, not just by the textile industry, but by all the prevailing sectors in the country!