Industry bodies urge RBI to cut policy rate
The Governor, Reserve Bank of India, Dr. Raghuram Rajan delivering the Annual Day Lecture on “Banking Structure in India: Possibilities and Challenges”, on the occasion of the Annual Day of Competition Commission of India, in New Delhi on May 20, 2014. Source: PIB, Government of IndiaAhead of the Reserve Bank of India's (RBI) bi-monthly monetary policy review, industry bodies like FICCI and Assocham expect RBI to cut policy rate as inflation is hovering at levels, much below foreseen by the central bank itself and the industry needs a demand trigger for a revival. Dr. Jyotsna Suri, President, FICCI feels reduction in lending rates by financial institutions is the need of the hour, which has also been acknowledged by the Finance Minister and the Chief Economic Adviser recently. “With inflation largely under control, we expect the Central Bank to reduce the repo rate by at least 50 bps to expedite the revival of private investments and demand for housing, automobiles and consumer durables. A cut in Cash Reserve Ratio (CRR) by 50 bps is also desirable as it will release liquidity in the system and enable effective transmission into lower lending rates by banks”added Dr. Suri. FICCI’s Business Confidence Survey concluded that investment outlook in India remained cautious, with majority participants citing availability and cost of credit to be a major constraining factor. RBI Governor Raghuram Rajan had cut the repo rate twice earlier this year in January and March, but left it untouched at the April bimonthly policy meet. The repo rate currently stands at 7.5% whereas CRR stands at 4%. The wholesale inflation (WPI) dipped for six consecutive months in April to -2.65%. Moreover, The 7.5 percent GDP growth rate witnessed in Q4 of 2014-15 (y-o-y) signals definite positive developments, said Assocham. “It is also heartening to see the 7.3% provisional annual figures of GDP growth for 2014-15. It seems that the attempts being made by the Government to reform the policies and processes have helped improve economic growth prospects," said Assocham’s President Rana Kapoor. In a note submitted to RBI chief, ASSOCHAM Secretary General Mr. D S Rawat said, the Consumer Price Index (CPI) is expected to be in a range of 4.5-6.0% over the remainder of 2015. Based on the RBI’s view, the real interest rate should be around 150-200 bps. “Thus, we anticipate a 50 bps reduction in the repo rate over the remainder of this calendar year, while 25 bps should be announced right away".
June 01, 2015 | 6:07 pm IST.
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