Industry lobby recommends interest rate cut

October 26th, 2008 - 3:16 pm ICT by IANS  

New Delhi, Oct 26 (IANS) Leading industry body Confederation of Indian Industry (CII) Sunday came up with a set of recommendations, including further cut in key interest rates, to help the economy tide over the current financial crisis.”It is necessary to further reduce repo rate by at least 50 basis points and in CRR (cash reserve ratio) by 150 bps to ensure adequate liquidity and reasonable cost of funding,” the chamber said in a statement.

According to CII director general Chandrajit Banerjee, Indian economy faces five major problems - inadequate liquidity, high cost of capital, non-availability of credit, instability in foreign exchange markets and low levels of confidence.

“All these five are inter-linked. We are already seeing the impact of these on the manufacturing sector and soon we are likely to see its impact on other sectors too, particularly in the services sector,” Banerjee added.

“In addition, there is a requirement for provisioning of liquidity to mutual fund and NBFC (non-banking financial company) sectors, to enable orderly operation of financial markets,” the statement said.

The CII has also urged the government to guarantee all bank deposits for a two-year period to maintain depositor confidence in the banking sector.

Expressing concern about the depreciating rupee, the CII made four specific suggestions - focused exchange rate management to prevent volatility without reducing rupee liquidity, relaxation of foreign investment norms, utilisation of foreign exchange reserves for meeting foreign currency needs, and removal of the cap on non-resident external and foreign currency non-resident deposits.

The key problem that industry is facing is the drying up of credit in the system. The CII has suggested a special corpus fund for lending to small and medium enterprises and speedy release of government funds for various projects.

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