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India Inc asks RBI to cut rate before January policy review

India Inc asks RBI to cut rate before January policy review

The Reserve Bank on Tuesday kept the key interest rates unchanged but hinted easing of rates in January, saying with decline in inflation, the focus of monetary policy would shift to removing impediments to growth.

Slowing down: The Indian economy grew by 5.4 per cent in the first half (April-September) of the current fiscal, against 7.3 per cent in the corresponding period last year. Slowing down: The Indian economy grew by 5.4 per cent in the first half (April-September) of the current fiscal, against 7.3 per cent in the corresponding period last year.
Terming RBI's policy as "harsh and disappointing", India Inc on Tuesday asked the central bank to cut interest rates before January 29 policy review to boost economic growth.

Industry body CII said with the government having announced a clear roadmap for fiscal consolidation and non-food inflation demonstrating a secular decline, conditions are conducive for RBI to have intervened with a repo and CRR reduction.

"We hope that the RBI would not wait for the next quarterly review, but would recognise the enormity of the problem and intervene sooner than that," CII Director General Chandrajit Banerjee said

He added that the industry is looking at the central bank for some relief with interventions which would help availability of capital at lower rates.

Describing central bank decision as 'harsh and disappointing,' Assocham President Rajkumar Dhoot said, "Our hopes of seeking some relief are dashed as the apex bank has yet again given away the opportunity to help reverse the business sentiments and see investments taking place."

The Reserve Bank on Tuesday kept the key interest rates unchanged but hinted easing of rates in January saying with decline in inflation, the focus of monetary policy would shift to removing impediments to growth.

The RBI left the short-term lending (repo) rate and the Cash Reserve Ratio (CRR) unchanged at 8 per cent and 4.25 per cent, respectively.

Ficci said inflation numbers should provide the central bank comfort to begin to consider a rate cut early in the next year.

"With the inflation numbers showing a decline and the global economy still in a difficult situation, industry is crying out for an impetus for investment and growth. Lower interest rates would be oxygen to the sentiment which is beginning to turn positive," Ficci President Naina Lal Kidwai said.

The WPI inflation in November moderated to 7.24 per cent, but retail inflation remain elevated at 9.90 per cent.

The Indian economy grew by 5.4 per cent in the first half (April-September) of the current fiscal, against 7.3 per cent in the corresponding period last year.

Commenting on the policy, Chief Economic Adviser Raghuram Rajan said it is good that RBI sees room for rate cut.

"I think it's good that RBI sees that there is room to ease. And clearly they are taking a decision keeping in mind that their main job is combating inflation. I look forward to good news in policy (January)," Rajan said.

"But they (RBI) also have some incentive to seek growth in the country," he said.

Asserting that RBI has its own constraint, Commerce and Industry Anand Sharma said: "There is, of course, a positive side that India has an independent regulator RBI which is not listening both to myself and finance minister but we expect them to."

Sharma said: "We are hoping that after major decisions the government has made which has boosted investors morale and confidence, RBI will be less conservative."

On inflation, the RBI policy review said that WPI inflation is showing some signs of moderation. "Liquidity conditions will be managed with a view to supporting growth...thereby preparing the ground for further shifting the policy stance to support growth," it said.

The RBI said that since the Second Quarter Review in October, the global economy has shown some signs of stabilisation although the situation remains fragile.

Lauding the government's recent policy initiatives, the RBI said, "Further reforms should help to boost business sentiment and improve the investment climate".

In its mid-year economic analysis for 2012-13, the Finance Ministry while projecting the GDP growth for current fiscal at 5.7-5.9 per cent, had pitched for supportive monetary and fiscal policies to improve investor confidence.

Published on: Dec 18, 2012, 6:42 PM IST
Posted by: Surajit Dasgupta, Dec 18, 2012, 6:42 PM IST