Why status quo by RBI disappoints India Inc

The industry’s demand for lower interest rates was fully justified, Assocham said.

Unhappy with Reserve Bank of India's status quo policy stance, India Inc said the central bank could have been more accommodating by reducing interest rate to boost subdued economic growth.

The rate cut, the industry chambers argued, could have given a positive signal to the manufacturing sector, which is undergoing difficult times.

"Although there has been some improvement in core sector activity, manufacturing has been subdued due to weak demand, therefore, curbing major improvement in capacity utilisations.      

"We continue to hope that RBI may send positive signals even sooner than the next policy review cycle," Federation of Indian Chambers of Commerce and Industry president Sidharth Birla said.

There were hopes that RBI could have found a merit in an accomodative stance on interest rate cycle on persistent weak demand and sustained moderation in inflation, Ficci said.

Reserve Bank on Tuesday kept the repo rate unchanged at 8 per cent and cash reserve ratio at 4 per cent, citing reason that a change in the monetary policy stance at the current juncture is ‘premature’.

Reading out the policy in a conference, RBI Governor Raghuram Rajan said, "There is still some uncertainty about the evolution of base effects in inflation, the strength of the on-going disinflationary impulses, the pace of change of the public’s inflationary expectations, as well as the success of the government’s efforts to hit deficit targets".

Confederation of Indian Industry said when economic recovery is still fragile and industry is growing at a faltering pace, bold decision of RBI to ease interest rates would have particularly benefited the credit starved small and medium-sized enterprises and improved the poor credit offtake by industry.

". . . 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," CII said.

RBI has obviously overlooked strong demand from the industry for a cut in interest rates. The industry’s demand for lower interest rates was fully justified, Assocham said.

"Growth alone can take care of employment and eventually cut inflation further by increasing the supply line, and bringing in structural changes for tackling inflation on sustained basis", it added.