R. Shankar Raman, chief financial officer at Larsen & Toubro Ltd. (LT), India’s biggest builder of power networks and airports, comments on interest rates. He spoke in a telephone interview from Mumbai.
The Reserve Bank of India today cut the repurchase rate to 8 percent from 8.5 percent. The decision was predicted by three of 25 economists in a Bloomberg survey.
The rate cut “is a step toward changing sentiment. Instead of trying to do it in small steps, Reserve Bank has decided to move ahead in a very definitive manner with a 50 basis point cut, thereby signaling that it is willing to get growth back on the agenda and willing to let go off inflation for the time being.
‘‘Latent inflation masked by subsidies is still a threat. oil prices are still a threat.
‘‘Most importantly are banks going to pass on the lower costs? Ability of banks to transmit the reduction in rates is key.’’
On Larsen & Toubro:
‘‘We’ve not been a large borrower in the domestic market. To that extent this will not make a significant difference to our own scheme of things.
‘‘But when it comes to all our infrastructure projects, where we’ve bid for concessions, softer interest rates will help. Sustainability of this softer interest-rate regime through the quarter or half-year is going to be important for us to get benefit out of this.’’
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