Knitwear manufacturers express concern over RBI move

The Reserve Bank of India’s (RBI) steps to quell rupee volatility and check speculation in forex markets have not cheered the knitwear manufacturers rather some of the measures sparked concerns.

Main worry for the textile entrepreneurs, who are looking for cheaper loans, is the raising of the interest rate under Marginal Standing Facility (MSF) by two percentage points, one of the monetary measures announced by RBI on Monday to suck out excess liquidity from the system and thereby, stabilise the rupee.

“This is a ridiculous move leading to the possibility of another hike in interest rates. In predominant small and medium scale enterprises clusters like Tirupur, the need of the hour is for reduction in cost of funds even from the present levels,” R. Girish, apparel exporter and founder member of Tirupur Exporters and Manufacturers Association, told The Hindu .

The MSF, introduced by RBI on May 9, 2011, is a lending mechanism in times of tight cash by which banks could get funds from RBI.

Various statements by policy managers on Tuesday that the Reserve Bank of India steps on Monday might not lead to any increase in interest rates, however, could not mitigate the concerns of businessmen.

“May be the banks might not increase the rates now, but at the same time all the hopes for a slash in Repo rates in the forthcoming monetary policy review by RBI has been dashed with the said move (i.e. increasing the MSF rate),” S. Dhananjayan, chartered accountant and industry consultant, pointed out.

Even Sensex, the Bombay Stock Exchange benchmark, on Tuesday, fell by 183.25 points mainly due to pull down by banking stocks following the RBI steps.

Mr. Dhananjayan was of the opinion that RBI stop making knee-jerk reactions rather it should address the actual problems that cause rupee volatility.

“We should stop the heavy dependency on Foreign Institutional Investors to offset current account deficit, which is found counter productive, rather should look for Foreign Direct Investment to make rupee steadier,” he said.

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