 "Inflation control RBI's priority, says India Inc")
“While RBI seems to be veering towards targeting consumer price inflation as its dominant guidepost, I believe this might result in a prolonged period of high rates this calendar year, without any real dampening of inflationary pressures. That’s because core consumer price inflation does not respond well to monetary measures. In such a situation, growth and investments could be casualties in an already fragile environment,” said Yogesh Agarwal, managing director and chief executive of Ballarpur Industries, an Avantha group company.
Most business heads say they don’t plan to raise funds in a major way or spend in new projects till the elections are over and a clearer picture emerges on the next government. “RBI is in a wait-and-watch mode and its action today is not a surprise,” said Prabal Banerjee, president (international finance), Essar group. “Till inflation is fully controlled, I do not foresee any big change in RBI’s rate policy.”
The chief financial officer (CFO) of a large company said he had expected RBI to cut the policy rates 25 basis points on Tuesday. “Now, everything is in the deep freezer till the next government is formed,” he said.
Earlier, most chief executives and CFOs had expected the central bank to opt for status quo, considering the uncertainties surrounding the elections and no respite from rising prices.
The central bank maintained its 2014 Consumer Price Index-based inflation at eight per cent and said this had an upside risk, largely on account of supply-side disruptions, including an El Niño-induced disruption to agriculture production and/or changes to administered prices of fuel and electricity.
“Much depends on non-economic factors such as the elections, which will be the main trigger by next month. Also, the risk of the El Niño exerting upward pressure on food prices can’t be ruled out. Inflation, both CPI and WPI (Wholesale Price Index) have come off their highs, but if these stay the course at these levels, rates will not come down before the latter half of this year, if at all,” Agarwal said.
Umesh Revankar, managing director, Shriram Transport Finance Company, said, “It is quite commendable to hold the rates, considering the fact that RBI’s policy has always revolved around containing inflation. This indicates RBI is confident of reigning in inflation in the long term, while the effect of previous rate rises is expected to come with a lag. We expect RBI to maintain a similar stance in the coming policy review as well.”
In terms of industrial growth, he hoped RBI started reducing rates after the first half of FY15, as this would provide much-needed impetus to small-scale industries, lowering their cost of funds and improving their margins and profitability, he added.
Chandrajit Banerjee, director-General, Confederation of Indian Industry, said RBI, in its quest to maintain a fine balance between growth and inflation, had announced status quo in policy rates, in line with market expectations. However, at a time when growth impulses were weak and WPI inflation was declining for the last nine months, the central bank should have taken the opportunity to announce a cut in policy rates, which would stimulated demand and kick-started the investment cycle, he added.