Business Today

India Inc disappointed over RBI inaction

The apex bank defended its move by saying that since the last rate cut, global macroeconomic indicators have deteriorated and that headline inflation numbers are far above comfort range.

IANS   New Delhi     Last Updated: June 18, 2012  | 16:50 IST

Indian industry on Monday expressed disappointment over the Reserve Bank of India's (RBI) decision to keep key lending rates unchanged to control inflation while the economy is facing a slow-down.

"CII (Confederation of Indian Industry) and industry are disappointed by the monetary stance taken by the RBI in today's (Monday's) policy announcement," said CII Director General Chandrajit Banerjee.

PERSPECTIVE:Has RBI left growth to fend for itself?

"It needs to be understood that with a steadily declining GDP (gross domestic product) growth millions of livelihoods are under threat, and therefore a very inflation-centric policy measure appears to have missed the bigger picture."

The repurchase rate remains unchanged at 8 per cent, which automatically keeps the reverse repurchase rate at 7 percent. The repurchase rate is the interest the central bank levies on short-term borrowings by commercial banks. The reverse repurchase rate is the interest on short-term lending.

The RBI was expected to cut these key rates, which would have translated in lowering of interest being paid by consumers on their loans for consumer durables, homes or automobiles.

The apex bank defended its move by saying that since the last rate cut, global macroeconomic indicators have deteriorated and that headline inflation numbers are far above comfort range.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said a cut in key lending rates would have been timely as the capital-intensive mining and manufacturing sectors are slowing down.

"A cut in the repo rate would have been very timely and may have provided some boost to already flagging growth", said Dr Rajiv Kumar, FICCI secretary general.

Recent data from the Central Statistics Office showed India's industrial output grew marginally by 0.1 per cent in April due to the poor show by the capital-intensive mining and manufacturing sectors.

The stock markets will now have to depend on government action and a good monsoon to sustain upward trends, according to Dipen Shah, head of fundamental research at Kotak Securities.

"From the market's perspective, this is disappointing, and it will now have to wait for government action and the monsoon's progress to see any sustained uptrend," Shah said.

The RBI declared, however, that it was ready to provide relief in situations arising out of the on-going turbulence in the global economy.

"Recognizing that the global situation is turbulent, the Reserve Bank stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments," the apex bank said in a statement.

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