The industry today expressed its disappointment on the Reserve Bank of India’s (RBI) decision to keep the key policy rate unchanged. It though welcomed 25 basis points reduction in the cash reserve ratio saying it would improve liquidity and hoped the central bank would cut repo rate in its next review.
“The cut in CRR would help the liquidity position and also send a signal that the RBI is softening its stand on the monetary side... With the government having started action on containing fiscal deficit, CII hopes that the RBI would intervene sooner than later to cut repo rates and help the process of an industrial and investment revival,” said CII Director General Chandrajit Banerjee.
The industry acknowledged the RBI’s concerns on inflation were genuine, but since India did not follow a system of inflation targeting and risks to growth were high the central bank could act to cut the rates.
R V Kanoria, President of industry chamber Ficci said while a reduction in interest rate was imperative to revive investment growth, there would be some leeway now for banks to lend more to the productive sector with the cut in CRR. Assocham President Rajkumar Dhoot said keeping interest rates high to control inflation has not delivered desired results and the consequential impact is slowdown in growth.
“Along with a cut in CRR, we were also expecting 25 bps reduction in policy repo rate. This could have given us more room for passing on the rate benefit to borrowers, particularly on retail and SME side,” said SS Mundra, Executive Director, Union Bank of India.
The industry also welcomed harmonisation of definition of infrastructure sector and further relaxation in branch authorisation policy.
Devendra Kumar Pant, Chief Economist, India Ratings & Research, A Fitch company, however, said contrary to market expectations the RBI has taken the correct step to hold repo rate same at 8 per cent.
“Although the government from September 2012 has taken few policy initiatives to address deficit and growth concerns, in short-term these will push-up inflation and their impact on macroeconomic stability will take some more time. September inflation has seen only the direct impact of increase in diesel prices; the indirect impact in the form of increase freight is yet to be reflected in inflation,” he said.
The industry stressed on the need for more actions from the government to address supply side constraints in order to bring inflation down, control fiscal deficit, address policy issues such as land acquisition and faster clearances of projects.
“The cost of funding of real estate is very high and the home buyers as well as developers expect the RBI to come out with positive policy and facilitate drastic reduction in interest rate,” said Credai National President Lalit Kumar Jain.
Ajay Srinivasan, CEO, Aditya Birla Financial Services said further decline in headline WPI from January onwards was expected while core inflation should hover around 5% levels.
