RBI move on rates disappoints industry

The Reserve Bank of India has once again deeply disappointed the industry which was expecting it to worry about a sharp deceleration in growth and go in for a substantial cut in the interest rates.
 
The 25 basis points cut in the CRR rate would somewhat address the problem of liquidity and the banks may also be prodded into marginally reducing the retail loan, but these steps will certainly not curb the problems that the Indian industry is facing.
 
RBI and the government both have recognized that the high cost of funds has become one of the big issues not only for the manufacturing but also for the consumers in several interest-sensitive sectors like automobile and housing. Besides, exporters who have   been facing harrowing times in the international markets are feeling the heat of increasing cost of money. Manufacturing is becoming unviable and new investment have receded significantly.
 
“ASSOCHAM is concerned over the fact that the RBI has missed an opportunity to use the monetary policy to pump the demand, especially in the coming festive season. The sentiment, which looked up after the Centre took courageous reforms friendly decisions like FDI in multi-brand retail and hike in diesel prices has been negated by the RBI inaction today,” said the ASSOCHAM chief, Rajkumar Dhoot said.
 
Dhoot has been stating that the only way to beat inflation is to increase supply which can be brought about by augmenting production and investment. But, unfortunately, there is a one-way direction that the RBI has been following rather unsuccessfully.
 
Apparel Export Promotion Council Chairman, Dr A Sakthivel said: “We are not happy with the non reduction of repo rate in quarterly review. The cost of credit is very high compared to the other countries; we lose our competitive advantage as far as capital availability is concerned. We expected that immediate relief to be given to exporters who are facing the problem of credit crunch.”

On the reduction of cash reserve ratio (CRR) of scheduled banks by 25 basis points from 4.75 per cent to 4.50 per cent Dr. Sakthivel remarked, “Reduction of CRR to 25 basis points will infuse liquidity of funds for the exporters. We request banks to facilitate exporters in liquidating the finances at the earliest.”

“India’s central bank continues to use monetary policy to fight inflation even at the cost of growth,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView.

“I believe the 25 bps reduction in CRR by the Reserve Bank is likely to further the positive market sentiment fuelled by the government’s reform measures but headline inflation in the economy remains elevated at 7.5% and upside risks to inflation continue to persist. Going ahead, I believe that inflationary pressures are likely to be intensified due to the hike in diesel and LPG prices, increase in global liquidity flows and high commodity prices," said Dinesh Thakkar, Chairman & Managing Director, Angel Broking.

Thakkar added that the recent measures by the government towards fiscal consolidation are expected to uplift market sentiments and revive investment climate in the economy. However, as far as the monetary policy stance is concerned, I continue to believe it will be focused on inflation management in the near-term.