Surprised by Reserve Bank of India (RBI)’s decision to raise key lending rate, India Inc on Tuesday said the central bank should now focus on boosting investments and economic growth rather than containing inflation.
“India had entered a cycle where high interest rates are leading to subdued demand conditions resulting in lower growth and investment. This in turn is aggravating the supply bottlenecks and adding to inflationary pressures thereby inducing the RBI to hold on to higher interest rates,” CII said in a statement.
It said that on account of slowdown and low industrial production, the RBI should shift its focus towards an accommodative monetary policy stance.
“This is an opportune time to accord precedence to growth over inflation especially as prices are trending downwards, core inflation is within the comfort zone of the RBI and inflationary expectations are not unduly high in view of a robust performance by the agriculture sector,” it added.
Some moderation in vegetable and fruit prices eased December retail inflation to three-month low of 9.87 per cent.
Wholesale inflation too has declined to a five-month low of 6.16 per cent in December.
The RBI should take cognisance of the faltering investment and consumption demand which is preventing the economy from realising its growth potential, the chamber said.
Reserve Bank Governor Raghuram Rajan on Tuesday again surprised the markets by raising key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates.
Expressing concern over the RBI’s move, Assocham said: “We seem to have been caught in some kind of vicious cycle which is taking a huge toll on growth”.