CII Director General Chandrajit Banerjee on Tuesday said the RBI's decision to maintain the status quo on policy rates indicates a guarded approach towards monetary easing to restrain inflationary expectations and is in alignment with market expectations.
Commenting on the third bi-monthly monetary policy, Banerjee said CII is of the view that the policy of frontloading the interest rate cuts should have been allowed to continue as this would have sent a strong signal that the RBI aggressively addressing the growth risks in the economy accruing from weak demand conditions which are holding back investments.
"No doubt, CII appreciates the RBI's concerns about the anticipated pipeline risks arising from inflationary expectations and unfavourable external developments as cited in the policy statement. However, crude oil prices have been on a downtrend thereby allaying fears of imported inflation, the timing of the proposed Federal reserve actions, which is anticipated to unsettle our financial market, is still unclear and the government's food policy management has beneficially impacted inflationary expectations which is reflected in our subdued headline inflation print," said Banerjee.
"At the same time, credit demand is weak and corporates and banks are grappling with a large number of stressed assets, particularly in the infrastructure sector. A cut in interest rate in such a situation would have done much to restore the investment cycle," he added.
Banerjee further said the CII expects that the spotlight would be shifted towards growth and RBI would resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the normalcy of monsoons and the possible Federal Reserve actions.
The RBI today kept both repo rate and the Cash Reserve Ratio (CRR) unchanged in its third bi-monthly monetary policy review this year.
The RBI announced that the repo rate remains unchanged at 7.25 percent and Cash Reserve Ratio at four percent.
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RBI Governor Raghuram Rajan said that the headline inflation is at elevated levels and banks are yet to pass on the full benefits of previous rate cuts.
Rajan said significant uncertainty on the factors influencing the monetary policy will be resolved in the coming months, including persistence of high inflation, monsoon as well as actions by the US Federal Reserve which is expected to shift to hiking rates.