India Inc welcomes RBI’s decision to pause rate hikeDecember 16th, 2011 - 6:30 pm ICT by IANS
New Delhi, Dec 16 (IANS) Welcoming the Reserve Bank of India’s decision to put a pause on the rate hike, India Inc. Friday said the central bank’s move would help improve business sentiments and boost industrial output and growth.
“The indication of a reversal in rate cycle is a welcome step and is a clear departure from the monetary tightening phase,” said Rajiv Kumar, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI).
In its mid-quarter review of the monetary policy, the Reserve Bank kept key rates unchanged Friday after 13 successive hikes since early 2010.
Chandrajit Banerjee, director general of the Confederation of Indian Industry (CII), said the RBI’s move would help regain the growth momentum.
“RBI’s guidance that monetary policy actions from now on will respond to the slowdown in growth is reassuring. However, the policy does not reflect the urgency of the situation where industrial growth is contracting and the investment outlook is subdued,” he said.
The CII director general urged the central bank to reverse its monetary tightening policy by cutting key policy rates in a bid to boost industrial output.
“Given that the need for improving sentiments and to stimulate growth is urgent, RBI could have used the current opportunity to send strong signals that growth will not be sacrificed further even while inflation is being controlled. In any case, inflation has started to soften, which is most welcome,” Banerjee said.
The central bank’s review came against the backdrop of India’s annual rate of inflation falling to 9.1 percent in November, while the food inflation fell to 4.35 percent for the week ended Dec 3.
But factory output declined 5.1 percent in October, while the gross domestic product saw a mere 6.9 percent growth during the second quarter of this fiscal, which was the lowest in over two years.
FICCI’s Rajiv Kumar said inflationary pressure was likely to moderate in the coming months.
“While we feel inflation rates will be coming off in next couple of months, there will be a significant uptick on imported inflation given the rupee depreciation,” he said.
The rupee has depreciated almost 20 percent against the US dollar since July. Kumar said to control the volatility in rupee, the RBI should “be vigilant and proactive in its exchange rate management”.
“We welcome the Reserve Bank of India’s decision to leave interest rates unchanged as doing so will aid in strengthening the economic growth momentum. This move will add greater impetus to the growth of the real estate sector, which is one of the largest contributors to the country’s GDP,” said Ajay Chandra, managing director of Unitech Ltd.
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