The 25 bps reduction in MSF rate is welcome, as it would help banks to reduce short term interest rates and enhance their lending operations during the busy season, said Confederation of Indian Industry Director General Chandrajit Banerjee on Tuesday.
In a statement, Banerjee further said that the step is appropriate especially at a time when there is a significant reduction in the flow of funds to productive sectors of the economy.
"Together with an increase in the liquidity provided through escalation of term repos from 0.25 to 0.50 percent of NDTL, the RBI has continued with the rollback of the unconventional monetary and liquidity tightening measures in July," he said.
"However, the commensurate rise in repo rate has come as a disappointment to industry, especially as the investment climate continues to be weak and growth outlook remains muted as a high interest rate regime deters consumption and investment demand," he added.
"The RBI could have refrained from affecting a hike in repo rate, as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation," Banerjee said in his statement.
"CII is fully appreciative of the RBI's concern on anchoring inflationary expectations, but this is a supply side led issue, and therefore, raising interest rate would hurt growth while proving unequal to the task of tackling inflation," he added.
"Going forward, inflation is likely to moderate owing to softening of food prices. In such a scenario, an impetus to growth was called for," Banerjee said.
"CII is hopeful of a cut in Repo rate and MSF in the next review which would rejuvenate investor sentiment and kick-start the investment cycle. At the present juncture, to aid recovery, it is imperative to step-up implementation of infrastructure projects, for which a reduction in policy rates assumes renewed urgency," he concluded.
