‘Monetary policy stance should be eased’
Steps needed to debottleneck supply constraints
Lowering of interest rates will ease cost pressure
NEW DELHI: Anticipating a further tightening of the monetary policy in the wake inflation touching a new high of 8.24 per cent for the week ended May 24, the Federation of Indian Chambers of Commerce and Industry (FICCI) has cautioned that the central bank must take a balanced view of the evolving situation.
Pointing out that continuous tightening of the monetary policy over the last one year has taken a toll on industrial growth which has fallen from 14.8 per cent in March 2007 to 3 per cent in March 2008, the chamber in a statement said that any further tightening of monetary policy at this juncture would further depress the performance of the industrial sector.
Drawing attention to the fact that the current inflationary pressures are driven largely by supply-side rigidities both in the case of agriculture and manufacturing sectors, FICCI has reiterated that all possible steps be taken to debottleneck the supply constraints as a sustainable solution to relieving inflationary pressures.
The findings of a study by FICCI show that companies across sectors are faced with rising cost of raw materials and oil products. The rising interest rates are also adding to the costs of the manufacturing companies. Addressing such cost-push inflation requires measures to augment the supply of industrial raw materials and reducing the interest burden on manufacturing units, it said. To prevent the situation from deteriorating further, the chamber suggested that the central bank should ease the monetary policy stance and revise interest rates downwards. Lowering of interest rates would lead to a sustainable solution through expansion of capacity that in turn would ease the supply constraint.