India Inc disappointed as RBI keeps rates unchanged

India Inc on Wednesday expressed disappointment saying a rate cut was needed to provide fillip to the flagging industrial economy and stimulate consumption that has been hit by demonetisation.

By: Express Web Desk | New Delhi | Updated: December 7, 2016 7:09:35 pm
RBI, repo rate, rbi rate cut, rbi policy review, monetary policy committee, news, rbi news, rate cut, cash reserve ration, news, india news, urjit patel, rbi governor urjit patel RBI Governor Urjit Patel announcing the bi-monthly monetary policy. Express Photo/Pradip Das

With RBI belying expectations of a rate cut, India Inc on Wednesday expressed disappointment saying a rate cut was needed to provide fillip to the flagging industrial economy and stimulate consumption that has been hit by demonetisation. Taking markets by surprise, the RBI kept short-term lending rate unchanged even as the central bank lowered GDP growth rate to 7.1 per cent and short-term disruption in economic activities due to demonetisation. All the six members of Monetary Policy Committee headed by RBI Governor Urjit Patel voted in favour of the decision. In view of disruption in economic activities due to demonetisation, RBI lowered growth forecast from 7.6 per cent to 7.1 per cent for the current fiscal.

WATCH | Reserve Bank Of India Keeps Repo Rate Unchanged Post Demonetisation

Here are some reactions

Harshavardhan Neotia,Ficci President: At this juncture, a 50 bps point cut in the repo rate would have provided the needed boost to the flagging industrial economy. The consumption demand has been impacted post demonetisation and a rate cut would have given a strong signal to the consumers and to the industry as well. Amidst a highly uncertain global environment, the impetus for growth will have to come from the domestic economy.

Sunil Kanoria, Assocham President: The underlying message is that the things at this stage seem to be in a state of flux even as the RBI itself has revised downward the estimates of the GVA by 50 basis points. How the demonetisation would play out for growth, lending rates or even inflation is not clear.

T S Bhasin, EEPC India Chairman: The exporting community is still facing problems with regard to production and reaching consignments to the ports. The exporters were also expecting some special window for the labour intensive sectors at least with regard to lower rate of interest

Arun Singh, Lead Economist, Dun & Bradstreet India: Demonetisation of high value notes is a step in the right direction in curbing the illicit economy and moving towards a cash-less and transparent economy. While this move is expected to impact overall GDP growth negatively in the immediate future, it will benefit the economy in the medium to long term. Even if this measure does not eliminate the cash flow of black money, it would certainly raise the costs and risks of such activities significantly in future. Improved tax collection, increase in savings, transparency in the system and proliferation of a cashless economy are the big positives for the economy going ahead.

“Although the dent in consumer demand, especially in the rural segment, and expected moderation in the money supply are likely to exert downward pressure on inflation, government spending is anticipated to increase and is likely to pull-in the private investment, which is a big positive for long term economic growth.

Surendra Hiranandani, Chairman & Managing Director of House of Hiranandani: Considering the current economic situation, it is disappointing that the RBI has chosen to maintain status quo on policy rates. A 25 bps was widely factored in as it would have provided some cushion from the impact of demonetization. While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetization, the downside risks to growth has increased significantly. This coupled with sluggish credit off take over the last few months has dampened economic activity across all the sectors. There is an urgent need to focus on growth and create more jobs that will strengthen the economy. A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization.

The highlight of the policy was the withdrawal of incremental CRR that will have an immediate effect of 25 bps and provide further liquidity in the system. This will definitely help the banks to drop lending rates, thereby giving the economy, a much-needed breather. The amalgamation of lower interest rates alongside the various progressive measures taken by the government towards deregulation may revive demand in the real estate sector.

Mrinal Sinha, Chief Operating Officer of MobiKwik: In India, number of bank card holders and users differ significantly and this step will help close this gap. This will further boost online payments and card acceptance infrastructure. In the past few weeks, we have seen a surge in usage of many digital payment platforms, be it wallets, cards or netbanking. Zaakpay, our payment gateway has observed a substantial jump in card payments too.

(With inputs from PTI)

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