Top Story

e4m_logo.png

Home >> Marketing >> Article

Ahead of festive season, RBI rate-cut to prove good news for ad market

30-September-2015
Font Size   16
Ahead of festive season, RBI rate-cut to prove good news for ad market

The Reserve Bank of India (RBI) Governor, Raghuram Rajan, in the monetary policy review took everyone by surprise by announcing a 50 basis point (0.50%) reduction in the repo rate. This has brought the repo rate to 6.75% and has also reduced the reverse repo rate to 5.75%. The repo rate is the rate at which banks borrow from the central bank, while reverse repo rate is the rate banks deposit idle funds with the central bank. Most analysts were expecting a rate cut of 25 basis points from the RBI governor.

This is the fourth rate cut during this year and the repo rate now stands at its lowest in almost four years. The last time the repo rate was at 6.75% was in March 2011. This particular rate cut is however most significant as the level of the rate cut to half by half a percentage point suggests that the RBI governor is sure that inflation is truly down to a manageable level and not an immediate threat to the economy. Acknowledging this, Rajan said that disinflation has been broad-based and inflation, excluding food and fuel, has also come off its peak in June.

The governor also acknowledged the finance ministry’s call to accelerate growth and as a result felt the need boost domestic demand to balance the weakening global demand. He further said, “Investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline, even if transmission is slow”. This shows his intent to promote investment by creating an environment where can continue to borrow and by that way look to boost demand for products and services.

The sectors which will primarily benefit from the rate cut will be the banking sector (BFSI) as home and corporate loans will be cheaper. This is expected to boost demand as banks are expected to pass the benefits to companies and home loan seekers. Apart from this it has also reduced the reverse repo rate which means that it reduces the interest rates for the funds it keeps idle with the central bank, thereby inculcating to banks to promote lending. As a result the real estate industry is also one of the primarily beneficiaries as it lowers interest rates on loans for property and thereby infuses demand. Another industry to benefit is the automobile industry that is also driven by loans. With the festive season approaching this news comes at the right time for auto companies looking to boost their sales during the next few months.

These are key sectors for the advertising and marketing industry and could see their ad spends increase in the coming few months in order to boost demand. Apart from these sectors there are other sectors and companies that will also take advantage of the lower borrowing rates to infuse more investment into expansion. This could also result in more funds being put into marketing plans to foster growth. Especially with the festive season approaching many sectors such as retail, consumer durables, handset manufacturers, etc. will look to drive demand through heavy marketing, thus taking ad spends higher. For instance, in an earlier article on exchange4media we saw that the auto industry festive spends could rise to Rs. 1,500 crore this year.

Tags repo rate cut RBI increase funding boost demand ad growth

Vijay Mansukhani, speaks to exchange4media about the resurgence of Onida, the scope of growth of consumer electronics market in India and the reasons why Indian consumer electronics brands don’t compete on a global scale

Projjol Banerjea opens up about hiring Anne Macdonald and GroupM's Rob Norman, and the brand's new identity

Meera Iyer tells exchange4media that in FY 2016/17, bigbasket clocked a revenue of Rs 1,400 crore. The online supermarket currently stands at 70,000 orders a day, with operations in 25 cities.

CMO, Kashyap Vadapalli on the start-up’s marketing play, why it has decided to stay away from IPL and response to its furniture rental apps

In an exclusive data shared with e4m, Pan Masala/Zarda/Gutkha had the highest jump of 185 per cent in terms of ad volumes in the first 14 matches

Bose, who has a career spanning over two decades, was DNA’s Editor-in-Chief. He has previously been associated with the India Today Group

Vijay Mansukhani, speaks to exchange4media about the resurgence of Onida, the scope of growth of consumer electronics market in India and the reasons why Indian consumer electronics brands don’t compe...