RBI missed opportunity to cut rates: India Inc.

January 27th, 2009 - 5:46 pm ICT by IANS  

New Delhi, Jan 27 (IANS) India Inc. Tuesday expressed disappointment over the central bank’s decision to maintain status quo on key rates, and said the Industry needed cash at “relaxed” interest rates.Earlier in the day, the Reserve Bank of India decided to keep the repurchase rate, the reverse repurchase rate, the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR) unchanged as it presented the third quarter review of its monetary policy here.

However, industry associations said it was an opportunity for the apex bank to lower rates given the rapid fall in inflation rate.

“This was an opportunity (to lower key interest rates) and would have served to further stimulate the confidence building measures initiated by the government and the RBI in the recent past,” the Federation of Indian Chambers of Commerce and Industry (FICCI) said in a statement.

The cash reserve ratio (CRR) should have been reduced by at least 100 basis points to infuse more liquidity into the system, it said.

The Confederation of Indian Industry (CII), another industry body, also said the conditions were ideal for rate cut.

“Given the fact that inflation is correcting more rapidly than expected and the economy is facing a slowdown, the RBI could have used this opportunity to cut key interest rates further,” the CII said in a statement.

The Associated Chambers of Commerce and Industry of India (Assocham) echoed the same view, saying it had expected at least 100 basis points cut in CRR, repo rate and reverse repo rate.

Assocham president Sajjan Jindal said the industry and the people in India needed money at “relaxed interest rates” for which rate cut is necessary.

“The demand creation and liquidity availability are still an issue and will remain so until interest rates are further moderated,” said Jindal.

He however welcomed the RBI decision to extend bank’s re-finance facilities to provide liquidity to mutual funds, non-finance banking and housing finance companies by relaxing maintenance of SLR up to 1.5 percent.

Madan Menon, managing director of consultancy major Global Banking and Markets, said the RBI had chosen to adopt a “wait and watch” stance on the policy rates.

“This appears to be a step in the right direction at the current juncture, considering that rates have been substantially reduced in the recent months and adequate liquidity has been injected into the banking system,” he said.

According to Menon, the RBI would cut rates by another 100 bps in the next three to six months.

Related Stories

    Posted in Uncategorized |