RBI disappoints India Inc and investors with its status quo
The Indian central bank on Wednesday left the repo rate and the reverse repo rate unchanged, leaving very little room now for lenders to lower interest rates.
New Delhi/Mumbai : The Reserve Bank of India (RBI), on Wednesday, kept its policy rate steady at six percent, and also left the reverse repo rate unchanged at 5.75 percent. as widely expected. However, India Inc and investors expressed their disappointment over the RBI call, taken after its fifth monetary policy review for the 2017-18 fiscal.
“The Federation of Indian Chambers of Commerce & Industry (FICCI) is disappointed with the RBI’s decision to hold on to the policy rate at the current level. A downward revision would have boosted sentiment and supported the growth momentum that we are seeing building up following the second-quarter GDP numbers,” said FICCI President Pankaj Patel. “The initial signs of a turnaround in the economy need all the support to translate into a solid recovery that is critical from a jobs perspective.
A cut in the policy rate with some more targeted intervention in the form of easing conditions for extending housing loans would have provided the needed stimulus and complemented the government’s own efforts to lend strength to the economic recovery process.” Meanwhile, the Confederation of Indian Industry (CII) said that a reduction in interest rates would give the necessary signal that fiscal and monetary policy are working in consonance to give a boost to growth. “We are hopeful that going forward the RBI would shift its policy stance from neutral to accommodative and effect a cut in interest rates to revive domestic demand, which would provide a fillip to broad-based investment activity which has yet to take off in a big way,” said CII Director General (DG) Chandrajit Banerjee. Furthermore, according to The Associated Chambers of Commerce and Industry (Assocham), while inflation weighed on the RBI’s decision, growth concerns “cannot be brushed aside” either, as the cost of capital is still high in India. “India Inc continues to remain over-leveraged while the consumer demand is still subdued. Benign interest rates are solutions to both these issues. “As for inflation, the RBI has genuine concerns but the message must be picked up by the government to fix the supply side, especially in the items of common use.” Assocham President Sandeep Jajodia said in a statement.
“The need of the hour is to attend to inefficiencies in the entire value chain in the farm sector so that both producers and consumers get a fair deal without impacting inflation. As for revival of growth, besides the interest rates, the tight liquidity situation should also be monitored. It must be ensured that when the growth stimulus picks up, adequate credit be made available to the industry, trade and consumer,” he added.
Going forward, several analysts expect the RBI to keep rates on hold in the coming months, including at its next policy meeting, in February 2018.