With RBI keeping the policy rate on hold, India Inc today said a rate cut is imperative to lower cost of funds for the industry and spur investments, crucial for sustaining high economic growth.
“A rate cut would have been spot-on for rejuvenating the investment cycle. We hope RBI would resume the rate-cutting cycle in the subsequent monetary policy soon after the Union Budget to complement the government’s efforts to revive private investments and bring the economy back to sustained growth,” CII Director General Chandrajit Banerjee said in a statement.
Reserve Bank Governor Raghuram Rajan today left the key interest rate unchanged at 6.75 per cent citing inflation risks and growth concerns, while pegging further easing of monetary policy on government’s Budget proposals.
“The slip-up in industrial growth as reported in the November numbers indicates persistence of underlying weakness and the fact that we are still away from a firm turnaround.
“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,” Ficci President Harshavardhan Neotia said.
RBI, which had cut interest rate by 125 basis points or 1.25 per cent in 2015, retained the benchmark repo (lending) rate at 6.75 per cent for the second straight bi-monthly policy of the current fiscal.
“Amid the recent economic developments in the world economy and impact on our financial markets, RBI should have reduced repo rate by at least 25 basis points to build not only the investors’ confidence, but also to support consumers who are impacted by the burden of EMIs,” PHD Chamber President Mahesh Gupta said.
“Though the RBI monetary policy is on expected lines, what really worries the industry are the challenges in the next fiscal because Governor Raghuram Rajan has not factored in the impact of the Seventh Pay Commission while setting the inflation target and the government’s fiscal balance,” Assocham President Sunil Kanoria said.
“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 levels,” he added.
“Deficit monsoon, increase in MSP of wheat and some other winter-grown pulses, implementation of the Seventh Pay Commission, along with weakening of the rupee, are likely to contribute to upside risks to inflationary pressure, going forward.
“This could be one of the key deterrents in cutting interest rate in the near term and RBI is unlikely to cut interest rate in coming 3-4 months,” Senior Economist at Dun & Bradstreet India Arun Singh said.
“The situation is particularly precarious for SME exporters who do not find favour with banks, especially when there is a liquidity crunch. Against this backdrop, reducing the cash reserve ratio (CRR) from the existing four per cent would have helped,” engineering exporters’ body EEPC India Chairman T S Bhasin said.
The next review or the first such meet for 2016-17 is scheduled for April 5.