Commenting on the status quo approach adopted by RBI in its fifth monetary policy statement released today, Mr Ajay S Shriram, President, CII stated that the “RBI, has leaned in favour of anchoring inflationary expectations in its pursuit of finding a solution to the growth – inflation conundrum which is as per market expectations.”
CII feels that at this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth. Industry was particularly hopeful of a rate cut considering that China has surprised the market by reducing interest rates by 40 basis points to attract investments. A rate cut would have propelled investment demand, spurred spending in rate sensitive consumer durable and given a fillip to construction activity.
At a time when economic recovery is still fragile and industry is growing at a faltering pace, the bold decision of the RBI to ease interest rates would have particularly benefitted the credit starved SME and improved the poor credit offtake by industry. What is more, the recent softening of inflationary momentum and the movement of consumer price index towards the RBI’s comfort zone indicates that most of the conditions for bringing interest rates down are being fulfilled.
“Going forward, CII hopes that the RBI would move in favour of growth in its next monetary policy and the new year would witness a cut in policy rates by at least 50 basis points,” added Mr Shriram.