With a decisive shift in the stance of monetary policy, we now expect the Central Bank to cut the repo rate by a further 50 bps over the course of 2015, said The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in a communication addressed to the RBI Governor, Dr Raghuram Rajan.
Considering that inflation based on both wholesale price index (WPI) and consumer price index (CPI) remain under control, this should result in transmission of reduction of rates in banks' base rates and thereby start an era of low interest rates and give boost to further investment, said Mr D.S. Rawat, national secretary general of ASSOCHAM.
Given the RBI's focus on quality of fiscal consolidation, we expect the next rate cut to be instituted after the presentation of the Union Budget, which would clarify the Government's intended medium-term fiscal adjustment path, as well as its expenditure priorities, noted the ASSOCHAM's recommendations on RBI's sixth bi-monthly monetary policy statement 2014-2015.
Hoping for the rate cuts to be speedily transmitted to lower interest rates, ASSOCHAM further said that a broad-based improvement in the growth momentum is likely to set in with a lag, after corporates' balance sheets become healthier, the land acquisition process picks up steam post the recent ordinance, and sector specific issues related to mining and power sectors are addressed.
The extent to which the Union Budget kick starts infrastructure activity and the pace with which urban consumer demand revives after the fall in inflation and the expectation of lower interest rates would also critically influence the pace of economic growth, it added.
Going ahead, ASSOCHAM expects India's economic growth to accelerate from 5.3-5.5 per cent in 2014-15 to 6-6.5 per cent in 2015-16.
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