The Reserve Bank of India’s new set of monetary measures to improve liquidity by further reducing the marginal standing facility (MSF) rate has left the industrialists/ technocrats in the capital-intensive Tirupur knitwear cluster puzzled.

The MSF, the rate at which the banks can borrow money from RBI over and above what is available to them through the liquidity adjustment facility (LAF) window, has been brought down from 9.5 per cent to 9 per cent, this week.

‘Opposite justification’

“Really, we did not know what the apex bank is doing with this type of disordered decisions. It has been only a couple of days prior to this reduction, the same RBI raised the Repo rate by 25 basis points with the ‘opposite justification’ that the inflation is on a high and there is a need to suck out excess liquidity from the system.

“While hiking the repo rate during September last week also the MSF has been brought down from 10.25 per cent to 9.5 per cent, which is paradoxical by its nature,” G. R. Senthilvel, secretary of Tirupur Exporters and Manufacturers Association, said.

The knitwear manufacturers pointed out that the need of the hour is the availability of funds (ie loans) at lower costs, if expansion plans were to be executed.

“For that, the interest rate on bank loans should be reduced for which the RBI has to bring down the repo rate. The reduction of MSF is not going to make the working capital and term loans cheaper,” pointed out S. Dhananjayan, industry consultant and chartered accountant.

The technocrats opined that RBI should be consistent in its ‘monetary steps’ otherwise which it would only send wrong signals to the industry.

“It should be remembered that unless capacity expansion takes place in industrial sectors and thereby, improves the industrial growth rate, the current account deficit cannot also be reduced,” they said.