India Inc disappointed over RBI decision not to cut key rates

Read full script: RBI Mid-Quarter Monetary Policy Review

The industry urged the central bank to consider a rate even before the next monetary policy review on July 30.

The repo rate at which the RBI lends to the system has been retained at 7.25 per cent,while the cash reserve ratio will continue to be 4 per cent.

RBI’s status quo influenced by external factors: Rangarajan

CII Director General Chandrajit Banerjee said,”The decision of the RBI to hold policy rates on status quo is disappointing. At a time when both growth and inflation

dynamics call for an accommodative monetary policy,RBI has taken a cautious approach of attending to the prospect of a possible resurgence in inflation over reviving growth in the economy.”

The quarterly GDP figures point towards a poor health of the economy even while industrial slowdown has not bottomed out and sluggish private and government capital expenditure is hurting investment in industry and economy,CII said.

“CII hopes that the RBI would not wait for the next quarterly review but intervene sooner if the economic condition warrants a mid-course correction,” the statement

said.

Assocham also said the RBI’s decision to keep rates unchanged is a complete disappointment.

“We cannot be going just by a sole consideration of rupee depreciation and its possible impact on inflation. Why ignore other factors like arrival of good Monsoon which will surely boost food supply to have a dampening impact on the price situation,” Assocham President Rajkumar N Dhoot said.

The Central Bank had reduced key policy rate (repo rate) by 0.75 per cent during the last three monetary policy announcements.

Though the headline inflation has come down,the RBI also sounded concerned over the persistently high food inflation,which has been hovering in the region close to ten per cent.

However,industry body Ficci observed that the RBI’s decision to keep interest rates unchanged was on expected lines.

“Given the depreciation seen in the value of the rupee in the recent past,the decision of RBI to put on hold any further rate cut was not totally unexpected,” Ficci President

Naina Lal Kidwai said.

She,however,urged the RBI to take into account the recent positive developments and provide a much-needed boost to spur investments.

“With some of the earlier concerns like inflation,negative IIP growth slowly receding,and performance of the monsoon being reassuring,the situation does appear to be improving and it is hoped that investment is in high focus as it needs a boost to trigger growth”,Kidwai said.

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She also pointed out to the weak monetary transmission by banks despite recent rate cuts by the Reserve Bank.

“Despite the 75 basis points cut in repo rate so far this year,the investment sentiment hasn’t really become buoyant and apprehensions remain. The lending rates have not come down and a pick up in non food credit is still elusive” Kidwai said.

Striking a cautious note,she said: “We have to remain on guard to tackle stress caused by the sudden fall in the rupee,which we believe RBI most certainly would as and when required.”