The Confederation of Indian Industry (CII) has welcomed the further reduction in statutory liquidity ratio (SLR) as a measure to channelize fund flow to the productive sectors of the economy.
However, the RBI, in a bid to safeguard against upside risks accruing from inflationary expectations, has also kept its rate easing cycle on hold, which is as per market expectations.
"At a time when industrial growth continues to be sluggish, CPI based inflation is moderating and above all, inflation risks are gradually abating due to improvement in monsoon conditions, the RBI could have taken this opportunity to effect a cut in interest rates", said Chandrajit Banerjee, Director General, CII.
"The high cost of capital has been dissuading industry from undertaking capacity expansion and is causing financial stress among firms where demand is credit driven. What is more, the government's commitment to adhere to the path of fiscal consolidation and recent steps to ease bottlenecks in the food supply chain, would help to alleviate inflationary pressures in the economy while stimulating growth, going forward," Banerjee said .
"All this could have motivated the RBI to give the primacy to growth by effecting a cut in interest rates. A rate cut at this juncture would have positively surprised the market and sent a strong signal that both the fiscal and monetary policies are working in tandem to bring growth back to the economy. Considering the transmission time taken for the impact of monetary policy to be visible, an impetus to growth could have assumed special importance," he added.
He further said: "Nevertheless, CII also welcomes RBI's commitment to carry forward banking sector reforms."