RBI kept key rates unchanged in its policy review, but India Inc is of the opinion that there is 'a lot of scope' for rate cuts in future.
With RBI keeping key rates unchanged in its policy review, India Inc said on Tuesday it sees 'a lot of scope' for rate cuts going forward on account of lower inflation engendered by a favourable monsoon. PHD Chamber of Commerce President Mahesh Gupta said "there is a lot of scope to reduce the repo rate as good monsoon is visible and inflationary expectations are benign".
At this juncture, the economy should be supported by lower interest rates to enhance the demand for durables and to boost the manufacturing sector, said Gupta, observing that the cost of credit to businesses is high as compared to many competitive economies, impacting not only the domestic but also the international markets. "The economic situation is improving and a further cut in policy rate at this juncture would have been well timed," FICCI President Harshvardhan Neotia said.
Citing upside risks to the Reserve Bank's inflation target for March 2017, Governor Raghuram Rajan maintained status quo on key rates at his last policy review meeting on Tuesday, as was widely expected, but underlined that the central bank continues to be accommodative. On the growth front, the RBI maintained its projection of 7.6% on a gross value addition basis, saying the favourable monsoon which is 3% above the average which raises agricultural growth and rural demand and higher consumption on the back of the 7th Pay Commission implementation. Engineering exporters' body EEPC India Chairman TS Bhasin pointed out that world trade has remained sluggish in the first half of 2016.
"Thus, challenges are likely to stay making it imperative for the Indian exporters to become competitive, for which an accommodative interest rates are a must. The interest rates form a significant cost of the shipments for the exporters, they must come down," he said. With the Monetary Policy Committee framework on the anvil, wherein shaping of the policy will shift to the panel, this might also be the last of the Governor-led policy announcements at Mint Street.
Industry body ASSOCHAM said it looks forward to formation of an institutional framework for deciding the policy interest rates in sync with the inflation and growth. Retail inflation inched up to a 22-month high level of 5.77% in June on increase in food prices including that of key kitchen staples like vegetables and cereals. Rajan's remarks on possibility of positive impact of monsoon on inflation and continuing accommodative stance towards interest rates augur well for achieving sustainable growth, ASSOCHAM said.
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