The Reserve Bank of India on Friday raised the repo rate by 50 basis points, the fourth straight increase since May, in a bid to control the rising inflation. The monetary policy committee (MPC), comprising six members raised the key lending rate or the repo rate to 5.90 per cent. It is the highest increase since April 2019. This is how the industry experts has reacted to the policy update.
Shrihari Gokhale, Chief Operating Officer, Lentra, a cloud native platform empowering banks & NBFCs to bridge credit gap
“This is a very stable policy by the RBI. Considering the current volatility of the global geopolitical and economic environment, and the continued risk of inflation and need for currency management, the increase in repo rate by 50 bps is a welcome move. I believe this approach will target two key challenges facing the Indian economy today. First it will control inflation from turning broad-based. Second, it will mute the impact of capital outflow and currency.
On the back of this policy, if we look at the entire forecast for next year, the inflation for January to March is estimated at 5.8, which will further shrink to 5% from April to June. This implies that there might now be the need for rate hike post January. Additionally, while the GDP grew at roughly at 4% in the last two fiscal years, we can expect a GDP growth of 7.2% in the coming year basis the current correction. In the coming months, we can expect excess liquidity in the system to be drained out and deposit rates to go up.”
Narayan Ramamoorthy, Chief Revenue Officer, Global PayEx, an AI powered cloud platform for working capital optimization in Accounts Payable and Receivable
“The current global macroeconomic and financial landscape where inflation is on the rise, the 50 bps raise to 5.9% in the repo rate for the fiscal by RBI is a welcome move. For the current fiscal, businesses will need to realign their strategy and prioritize working capital management by optimizing their operational and financial expenditures. Stemming from the concerns to provide stability to the Indian economy, the revised repo rate will provide better treasury investment income via deposits. But, this can be realized only if accounts receivables (DSO – Days sales outstanding) is kept under control, which is likely to get challenging due to customer’s working capital requirements and challenges. Therefore, receivables management will become even more critical. The latest developments will accelerate the demand for integrated invoice to cash (I2C) applications. Businesses are urgently optimizing their I2C processes and pursuing efficiency to enable faster cash collections and enhanced customer experience.
The demand of goods and services will also be affected as consumer affinity will decline towards high priced/ discretionary products, possibly leading to higher inventory holding costs through the supply chain. Hence, business need to optimize inputs costs/ quantity, product mix, and might need to provide additional support to dealer/ distributors to optimize sales and revenues. Lastly, financing costs will continue to increase for both channel (distributor) financing and invoice factoring/ reverse factoring. Corporates have to play a more active role with banks/ lenders to optimize lending costs across their vendors and customers to ensure revenue and margin growth and resiliency.”
Sachin Agrawal, Co-Founder & CEO, Bizongo, a B2B trade enablement platform for customized goods.
“The RBI’s decision to increase the repo rate by 50 bps (0.50%) is a step in the right direction. The priority is certainly to reign in record inflation, which puts a tremendous burden on the resources of any business. While the increase in interest rates on loans and credit may cause a slight dip in aggregate demand, we continue to remain optimistic about the future, for two reasons. First, despite macroeconomic headwinds and monetary tightening, India’s manufacturing activity is rapidly expanding. This indicates strong demand and sales of goods. Second, with global commodity prices steadily going down, the costs of inputs are also gradually decreasing. We, therefore, believe that despite the repo rate hikes, the manufacturing sector would continue to show resilience.
There however will be a significant impact on credit demand among manufacturers, especially MSMEs. Manufacturers are already dealing with the impact of high input costs on their working capital. With higher lending rates, their operational expenditures will be significantly impacted, thus reducing their appetite to borrow loans. In this context, it is critical for manufacturers to optimize their supply chain operations and payments processes. The adoption of technology will certainly enable manufacturers to build visibility over such operations and cash flows. These are important steps for manufacturers to build resilient supply chains and financial processes, that can withstand macroeconomic headwinds.”
Gurjodhpal Singh, Chief Executive Officer, Tide India, UK’s leading MSME-focused digital business banking platform that launched its in operations in India in 2020.
“With the mounting inflation affecting the global economies, the move by RBI to increase the repo rate by 50 basis points (bps) will provide the Indian economy with the much needed stability. However, this will affect the expansion of small businesses as the increase in loan interest rates and credit will put pressure on their operational efficiencies.
Since small businesses are a major contributor to the country’s GDP, they will need to rejig and manage their working capital efficiently. The demand of goods and services amongst consumer will also decline due to the rising costs. Therefore, it will become crucial for businesses to strategize and use technology to help realign business priorities and efficiently manage their capital. A deeper analysis of their working capital will enable businesses to stay afloat till the economy recovers.”
