RBI’s status quo on key rates evokes mixed response

The sixth bi-monthly monetary policy statement 2015-16 also underscored some of the apparent reasons for India’s satisfactory growth rate and projected 7.6% GDP growth rate for the year 2016-17 The Dollar Business Bureau

The reverse repo rate under the LAF is unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75%

Ahead of the Union Budget 2016-17, the Reserve Bank of India (RBI) Governor Raghuram Rajan decided to keep the repo rate and cash reserve ratio unchanged, citing reasons as the current and evolving macroeconomic situation. “On the basis of an assessment of the current and evolving macroeconomic situation, it has been decided to continue with daily variable rate repos and reverse repos to smooth liquidity,” the RBI said in a statement on Tuesday. “Consequently, the reverse repo rate under the LAF will remain unchanged at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 7.75%,” the statement said. Referring to the country’s current growth rate, Rajan said that while the current momentum of growth is reasonable, underlying growth drivers need to be rekindled to place the economy on a higher growth trajectory. The sixth bi-monthly monetary policy statement 2015-16 also underscored some of the apparent reasons for India’s satisfactory growth rate and projected 7.6% GDP growth rate for the year 2016-17. The RBI Governor underlined the importance of maintaining a steady disinflation, a modest current account deficit and commitment to fiscal rectitude to strengthen the foundations of stable and sustainable growth. Giving a direct massage to the Finance Minister Arun Jaitely, the RBI governor said that structural reforms in the forthcoming Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5% by the end of 2016-17. Several industry analysts said that the announcements were on the expected lines. However, they cautioned that the Finance Minister will need to come up with an innovative Budget in order to boost investments in the country’s key sectors. “Though the RBI monetary policy is on the expected lines, what really worry the industry are the challenges in the next fiscal. If the pay commission recommendations are accepted and implemented without any dilution or staggering, the consequences are going to be disastrous for the economy, coming from deteriorating quality of expenditure both at the state and central level,” said Sunil Kanoria, President, ASSOCHAM. Harshavardhan Neotia, President, FICCI, expressed concern over the slip-up in industrial growth in November, saying that the numbers indicate persistence of underlying weakness. “The demand situation remains weak and the cost of funds for the industry has not really come down. Bringing down interest rates is imperative to propel investments,” he said. Export bodies, however, said that the RBI should have eased the cash reserve ratio to infuse liquidity in SME sector. “Even though operating in an embattled global economic environment, exporters are finding it hard to get adequate bank credit in the wake of tight liquidity creeping in the financial markets,” Chairman of the EEPC India, T S Bhasin said. He stressed that the Cash Reserve Ratio (CRR) should have been reduced from the existing 4% as the SME exporters, who do not find favours with the banks, especially when there is a liquidity crunch, would have been able to mitigate the absence of interest subvention. “There are reports that the RBI has been intervening now and then to strengthen the rupee, a policy which will not help the cause of the exporters. A sharp fall in the currency value of other competing economies is exerting pressure on Indian exporters,” Bhasin said.

February 03, 2016 | 02:30pm IST

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The Dollar Business Bureau - Feb 03, 2016 08:56 IST

RBI’s status quo on key rates evokes mixed response

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