RBI status quo disappoints demonetisation-hit India Inc


New Delhi: Disappointed with the Reserve Bank’s decision to leave key policy rates unchanged, India Inc today said a rate cut was needed to revive demand hit by the cash crunch post demonetisation.

Industry bodies also expressed concern over the apex bank shifting the stance of the monetary policy from ‘accommodative’ to ‘neutral’.

“A cut in the repo rate would have boded well for the economy. Giving a push to demand which has taken a hit in the demonetisation process is critical as also the need to incentivise domestic private investment in the country which remains lackadaisical,” Ficci President Pankaj Patel said.

Assocham said more worrying is the RBI putting an end to the ‘accommodative’ stance.

“The RBI, in a way, has put the ball in the court of the government for softening of the interest rates which, it said, would depend on how soon the problems of the bank non-performing assets (NPAs), recapitalisation of the lenders and re-calibrating of the small saving, are resolved.

“We urge the government to take signals from the RBI seriously and address these issues. There is a strong case for fiscal support, besides the monetary measures, to generate the consumer demand and revive the investment cycle,” Assocham President Sunil Kanoria said.

He said while inflation targeting remains an important mandate of the RBI’s Monetary Policy Committee, subdued growth should also weigh on the policymakers.

“We do take cognisance of the fact that banks have moved forward to revise down their lending rates over the last month. However, a more sustained effort would be required to bring a turnaround in domestic private capex cycle,” Patel said.

“With compelling reasons for both sides of the debate, the monetary policy committee was left with an unenviable task.

What finally weighed on their minds were uncertainties about sticky core inflation, commodity prices and possible Fed rate hikes,” Mahindra Group CFO VS Parthasarathy said.

Naresh Takkar, MD and Group CEO of rating agency ICRA, said, “While the change in the stance to neutral from accommodative and focus on bringing CPI inflation to 4 per cent in a durable manner lent a rather hawkish tinge to the policy document, the verbal comments emphasised flexibility.”

For the second time in a row, the Reserve bank today opted for a status quo in its key rates but shifted the stance of the monetary policy from ‘accommodative’ to ‘neutral’.

The repo rate at which it lends to the system stands at 6.25 per cent and the reverse repo rate, at which it absorbs excess liquidity, is also retained at 5.75 per cent.

RBI also revised down its gross value added growth projection down to 6.9 per cent for 2016-17 from 7.4 per cent earlier, but added that it will pick up sharply to 7.4 per cent in 2017-18.