The mid-quarter review of the monetary policy by the RBI has evoked a mixed response from the industry, which was hoping for a rate cut.
“We understand that the RBI needs to strike a balance between inflation, currency and growth—which is extremely difficult. Industry would have liked reduction in headline rates. The reduction in marginal standing facility (MSF) by 75 bps is encouraging as this is working as the short-term interest rate,” said Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII).
He said the increase in Repo Rate could have been avoided as industry was already reeling under pressures of high cost of capital and low availability in a tight liquidity situation. “CII is fully appreciative of the RBI’s concern on inflation, but as we have been pointing out all along, this is a supply side led issue and therefore, at this point of time, growth should have found priority for the central bank,” Mr. Banerjee added.
Industry chamber ASSOCHAM said that fighting inflation was RBI’s main priority and thus the governor had acted in a cautious manner despite clamour for rate cut.
“Contrary to the expectations, the RBI has chosen to further tighten the monetary stance giving a clear signal that fighting inflation is its core priority. Governor Dr Raghuram Rajan has acted in a cautious manner, all the financial markets were expecting rather too much from him,” ASSOCHAM president Rana Kapoor said.
“ Given the constraint of high inflation and continuing uncertain global factors (the latest US Fed stance is only a temporary reprieve) and their impact on the country’s current account deficit and domestic inflation, the RBI was not left with many options,” said Mr Kapoor.
All India Association of Industries (AIAI) said that the 75 bps reduction in MSF would not really reduce the cost of funds at which the banks borrow and thus they would not passing on any benefits to the customers in terms of lending.
The increase of 25 bps of repo rate will not reduce the liquidity of the banks and will hardly be a tool to combat the inflation which is hovering between 9-11 per cent. Inflation can only be reduced if productivity gets impetus,” said Vijay Kalantri, President, All India Association of Industries (AIAI).
