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India Inc disappointed over RBI holding rates

Last updated on: August 04, 2015 16:14 IST

Indian elephantsDisappointed with the Reserve Bank of India's move to hold policy rates, India Inc today said the central bank should have slashed the benchmark rate to address risks to economic growth accruing from weak demand conditions which are holding back investments, as cost of capital remains high.

"CII is of the view that the policy of frontloading the interest rate cuts should have been allowed to continue," Confederation of Indian Industry Director General Chandrajit Banerjee said.

He added that credit demand is weak and corporates and banks are grappling with a large number of stressed assets, particularly in the infrastructure sector.

"A cut in interest rate in such a situation would have done much to restore the investment cycle," Banerjee noted.

However, going forward, CII said it expects the spotlight to shift towards growth and the RBI to resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the normalcy of monsoons and the possible US Federal Reserve actions.

Federation of Indian Chambers of Commerce and Industry president Jyotsna Suri said, "The decision of the central bank to keep the policy rate unchanged is disappointing for the industry.

“Given that the industrial growth still remains volatile and demand conditions have not seen much improvement, there is a need to give policy stimuli to encourage demand and investments."

The Reserve Bank on Tuesday kept its policy rates unchanged, with governor Raghuram Rajan saying that the headline inflation is at elevated levels and banks are yet to pass on the full benefits of previous rate cuts.

RBI has cut the rates thrice so far in 2015 by 25 basis points each in January, March (both off-policy moves), and during the June policy.

Accordingly, the repo rate at which the RBI lends to the system, will continue to be unchanged at 7.25 per cent and the cash reserve ratio, which is the proportion of deposits banks have to park with the central bank, will remain 4 per cent.

"India Inc is surely disappointed with the RBI not announcing any cut in the policy interest rates, which have become one of the biggest drags on the balance sheets of the corporate," Assocham Secretary General DS Rawat said.

Exhorting the RBI to take full advantage of the cheap commodity prices, including the fuel and go in for some ‘bold moves’ in interest rates, Rawat said that would have helped revive the consumer demand and in de-leveraging the balance sheets.

Engineering exporters' body EEPC India said the high cost of borrowing, coupled with increasing number of loans turning into non-performing assets, have pushed manufacturer exporters in a ‘vicious circle’.

"It is time the government intervened to announce some important measures to mitigate exporters' pain, else exports would fall far short of even $300 billion in the current fiscal, against $310 billion in 2014-15," EEPC India Chairman Anupam Shah said.

Yes Bank MD and CEO Rana Kapoor said oil prices and monsoon have evolved favourably over the last 1-2 months with disinflationary forces being reinforced by the government's astute management of the food economy and improving quality of spending.

"This in my opinion should create room for at least 50-75 bps of incremental monetary easing hereon upto March 31, 2016," he said.

PHD Chamber of Commerce President Alok B Shriram too expressed his disappointment on status quo maintained by RBI on repo rate saying that the pressure of high interest rates is impacting industry and investment environment.

"An aggressive move to cut repo rate is needed at this juncture to facilitate industry to grow in double digits to achieve the desired objectives of Make in India.

"It will further help to refuel demand scenario and sentiment for investments to strengthen," Shriram said.

Image: Two elephants fight during a traditional festival in Boko, Assam. Photograph: Utpal Baruah/Reuters

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