India Inc. Tuesday welcomed the Reserve Bank of India's decision to reduce assets liability of banks and thereby easing liquidity.
The Confederation of Indian Industry (CII) welcomed the central bank's decision to reduce the statutory liquidity ratio (SLR), which is the quantum of liquid assets banks have to hold against their deposits by 50 basis points.
CII's director general Chandrajit Banerjee said the policy announcement has shifted the spotlight back on growth while restraining inflationary pressures in the economy.
"Industry believes that the reduction in the SLR is a clear message from the RBI that growth is a priority with RBI and would help availability of capital," Banerjee said.
CII suggested that to contain inflation, the government should address supply-side bottlenecks in production and distribution in agriculture sector like timely intervention to release excess food stocks, permit key food imports and dismantle the system of administered prices.
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The Federation of Indian Chambers of Commerce and Industry (FICCI), another leading industry lobby, too welcomed the SLR cut. However, it said that a cut in key lending rates would have encouraged investments.
"After this policy, our hopes are singularly hinged on the forthcoming Union Budget for reviving growth," said Sidharth Birla, president of FICCI.
"FICCI has consistently advocated that monetary policy must take due cognizance of all factors and not anchor itself to just inflation. We would have appreciated the central bank facilitating a revival of capex (capital expenditure) cycle by exhibiting softer stance on policy rates."
Associated Chambers of Commerce and Industry (Assocham) president Rana Kapoor said that ample liquidity already existed in the system, while the real concern was the cost at which it was available for borrowing.
"The issue facing the industry at this point of time is not so much of liquidity but the cost of borrowing. With robust foreign inflows, the system has ample liquidity," said Kapoor.
"The country must move towards a regime of benign interest rates if we have to see consumer demand pick up and industrial growth revive. It is also time that we aggressively tamed the inflationary pressures through measures other than the monetary tools."
RBI Governor Raghuram Rajan was widely expected to retain the current rates in the year's second bi-monthly review of the repurchase or repo rate.
The current policy rates are: Bank rate 9.0 percent, repurchase rate 8 percent, reverse repurchase rate 7 percent and marginal standing facility rate 9.0 percent.
The repo rate is the rate banks pay when they borrow money from the central bank to meet their short term fund requirements. Reverse repo rate is the interest rate that the RBI pays to commercial banks when they keep their surplus short term funds with the central bank.
While the cash reserve ratio was kept unchanged at 4 percent, the SLR was reduced by 50 basis points to 22.5 percent.
The central bank also cut the liquidity provided under the export credit refinance facility from 50 percent of eligible export credit outstanding to 32 percent. This, in effect, reduces the amount of money available to exporters to get credit.
The RBI's decision was also welcomed by the markets. The sensitive index (Sensex) of the Bombay Stock Exchange, which opened at 24,729.22 points against Monday's close at 24,684.85, rose by about 164 points at the time of provisional ending.
It had, however, dipped marginally after rates were kept unchanged but quickly recovered.
The wider 50-scrip Nifty of the National Stock Exchange (NSE) also made gins. It ended trade 51.95 points or 0.71 percent up at 7,414.45 points.