New Delhi, Dec 7 (IANS) The RBI decision to keep the key policy rate unchanged in its bi-monthly review on Wednesday has come as a surprise to Indian industry, which said it was expecting 25-50 basis points cut to boost demand that has been impacted after demonetisation
“RBI’s stance in the monetary policy announced today belied the wide expectation of a rate cut. At this juncture a 50 bps point cut in the repo rate would have provided the needed boost to the flagging industrial economy,” Federation of Indian Chambers of Commerce and Industry (Ficci) President Harshavardhan Neotia said.
The Reserve Bank of India (RBI) on Wednesday kept the repurchase rate, or the short-term lending rate charged by the central bank on borrowings by commercial banks, unchanged at 6.25 per cent in its first policy review after demonetisation. The reverse repurchase rate also automatically stands lowered to 5.75 per cent.
“The consumption demand has been impacted post demonetization and a rate cut would have given a strong signal to the consumers and to the industry as well,” Neotia said.
Amidst a highly uncertain global environment, the impetus for growth will have to come from the domestic economy, he added.
Associated Chambers of Commerce and Industry of India (Assocham) President Sunil Kanoria said: “A cut in interest rate would not have made much of difference to the credit offtake in the midst of the industry being over-leveraged and the consumer demand remaining tepid because of scrapping of the high value currency notes.
“It is apparent that all energies are being utilised to deal with the demonetisation issue and things can get clearer only after normalcy is restored by way of re-monetisation of the currency for the trade and industry to get back to shape.”
Chief Economic Adviser Arvind Subramanian however termed the RBI monetary policy “bold and brilliant, providing continuity and stability in times of domestic and international volatility.”
Canara Bank MD and CEO Rakesh Sharma said that RBI kept the rates unchanged in view of the expected rate increase by the Federal Reserve this month and also aimed at anchoring inflation.
“This will ensure stability to currency and anchor inflation expectations. As we get clarity on inflation and what Federal Reserve does later this month, we can expect RBI will be data dependent for next cut,” he said.
PwC India Partner Kuntal Sur said: “Global factors like stronger US dollar, possibilities of further rate hike by US Fed in December, hardening of oil prices internationally may have forced RBI to keep repo rate unchanged at 6.25 per cent.”
House of Hiranandani CMD Surendra Hiranandani said: “While it is anticipated that the Fed might increase rates from December, so reducing rates here could have an inflationary effect in the medium term, we have to remember that post demonetisation, the downside risks to growth has increased significantly.”
“A rate cut in the February policy seems inevitable now as the Central Bank would have got better clarity by then on the impact of demonetization,” he added.
Fullerton India Credit Company head of business execution Anand Natarajan said: “The RBI has rightfully kept the stance accommodative and ready for response, and has resisted knee-jerk policy actions.
“This is pragmatic, and keeps the market primed for rate cuts in 2017, environment withstanding. It is comforting to note that the MPC vote was unanimous in the policy stance.”