Unhappy with Reserve Bank's status quo policy stance, India Inc said the central bank could have been more accommodating by reducing interest rate to boost subdued economic growth. The rate cut, the industry chambers argued, could have given a positive signal to the manufacturing sector which is undergoing difficult times.
"Although there has been some improvement in core sector activity, manufacturing has been subdued due to weak demand, therefore curbing major improvement in capacity utilisations. We continue to hope that RBI may send positive signals even sooner than the next policy review cycle," FICCI President Sidharth Birla said in a statement. There were hopes that RBI could have found a merit in an accomodative stance on interest rate cycle on persistent weak demand and sustained moderation in inflation, FICCI said.
Reserve Bank today kept the repo rate unchanged at 8% and cash reserve ratio (CRR) at 4%, citing reason that a change in the monetary policy stance at the current juncture is "premature". Reading out the policy in a conference, RBI Governor Raghuram Rajan said, "There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public's inflationary expectations, as well as the success of the government's efforts to hit deficit targets".
CII said when economic recovery is still fragile and industry is growing at a faltering pace, bold decision of RBI to ease interest rates would have particularly benefited the credit starved SME and improved the poor credit offtake by industry. "... At this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth," CII said.
RBI has obviously overlooked strong demand from the industry for a cut in interest rates. The industry's demand for lower interest rates was fully justified, Assocham said. "Growth alone can take care of employment and eventually cut inflation further by increasing the supply line, and bringing in structural changes for tackling inflation on sustained basis", it added.
However, appropriating RBI's stance, consultancy firm KPMG said inflation has come down because of fall in global prices of crude oil, while structural changes in domestic economy are still awaited. "The inflation which has come down today is not because of structural changes in the domestic economy but due to fall in international prices of crude, which has fallen to a historical low. Therefore, we understand and appreciate the RBI?s stance on no cut in interest rates and look forward to structural changes by the Government in the domestic economy," said Shashwat Sharma, Partner- Financial services, KPMG in India.
Consumer Price Index (CPI) based retail inflation had declined to 5.52% in October on cheaper food items, while wholesale price index (WPI) based inflation dropped to a five-year low of 1.77% during the month.
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