Disappointed with RBI’s decision to leave policy rates unchanged: Industry

Disappointed with the RBI’s decision to leave policy rates unchanged, India Inc today said a rate cut would have helped restore the investment cycle as the industry continues to battle a slump in demand.Experts said a future rate cut would depend on the inflation trajectory, behaviour of monsoon and global factors.

“At this time when credit demand is still flat and industry is facing a demand crunch, a rate cut would have done much to restore the investment cycle. CII is hopeful that RBI will resume the rate cutting cycle and support growth impulses in the economy in the next monetary policy,” CII Director General Chandrajit Banerjee said.

RBI Governor Raghuram Rajan today kept the key policy rate unchanged citing higher upside risks to ‘inflation trajectory’ but said the central bank will remain accommodative provided data are supportive. Accordingly, Rajan retained the short-term lending rate at 6.5 and the cash reserve requirement of banks at 4 per cent.

“This has lowered the chance for any reduction in interest rate in the medium term. Any reversal in CPI trajectory led by good monsoon, improvement in transmission and the effect of the US Federal Reserve policy meet on the USD/Rupee will guide future measures from RBI,” the Head of Research at Geojit BNP Paribas Financial Services, Vinod Nair, said.

“The timing of the next rate cut would take a cue from whether a well-distributed monsoon in 2016 dampens inflationary concerns, the pace of improvement in transmission and the extent of volatility post any major geo-political events such as the Brexit,” ICRA MD & Group CEO Naresh Takkar said.

“It appears that the uncertainties on the global horizon with Fed policy overhang and UK Brexit vote tipped RBI’s decision in favour of a status quo. With its accommodative stance still in place, I now see high probability of a rate cut in August by at least 50 bps,” YES Bank MD & CEO Rana Kapoor said.