RBI’s decision not to cut interest rate a ‘missed opportunity’, say industry leaders
The Reserve Bank of India’s decision to maintain status quo on key interest rates has evoked strong reaction from Indian industries. The central bank, in its bi-monthly monetary review announced on Tuesday, kept the rapo rate unchanged at 7.25% and the cash reserve ratio (CRR)— the proportion of deposits banks have to keep with the RBI— at 4%. Several industry bodies said that they are disappointed with the RBI’s move and suggested that a reduction in rapo rate (lending rate) would have revived the investment cycle in the economy. Industry leaders are of the view that the high cost of borrowing is a major factor behind the lack of investment in capital. This is creating obstacle for the country’s economic growth. “India Inc is surely disappointed with the RBI not announcing any cut in the policy interest rates, which have become one of the biggest drags on the balance sheets of the corporate,” said Rana Kapoor, President of the Associated Chambers of Commerce and Industry of India (ASSOCHAM). It said the RBI’s concern over the impact of possible hike in the interest rate by US Federal Reserve has already found balance with good monsoon and falling prices of crude oil and other key commodities. “India Inc would like RBI to take full advantage of the cheap commodity prices, including of the fuel and go in for some bold moves in interest rates...that would have helped both ways- in reviving the consumer demand and de-leveraging the balance sheets, Kapoor said, adding that not cutting the interest rate is “a missed opportunity again”. Jyotsna Suri, President, of the Federation of Indian Chambers of Commerce and Industry (FICCI) also expressed similar concern, saying, “Given that the industrial growth still remains volatile and demand conditions have not seen much improvement, there is a need to give policy stimuli to encourage demand and investments.” She said that controlled inflation and the latest capital support provided by the government to the public sector banks should enable effective transmission into lower lending rates. “Hence, we do hope that the central bank will consider an accommodative policy stance much ahead of the next scheduled bi-monthly monetary policy,” Suri said. According to the Confederation of Indian Industries (CII), a reduction in interest rates would have provided relief to corporates and banks that have been “grappling with a large number of stressed assets, particularly in the infrastructure sector”. "A cut in interest rate in such a situation would have done much to restore the investment cycle,” said CII Director General Chandrajit Banerjee. In its previous three policy reviews this year, RBI has cut the rates by 25 basis points each time in January, March and June.
August 05, 2015 | 4:06 pm IST.
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