Industry Hopes For An Accommodative Monetary Policy Early Next Year | SupportBiz

News

Industry Hopes For An Accommodative Monetary Policy Early Next Year

 
The RBI's next policy review is in early February, and most analysts expect the central bank would either cut interest rates then or wait until April.

New Delhi: While keeping key rates unchanged, the RBI Governor has said if current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year

Commenting on the status quo approach adopted by RBI in its fifth monetary policy statement released on Tuesday, 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.”

The Reserve Bank of India (RBI) held interest rates steady widely expected at its policy review on Tuesday, but said it could cut interest rates by early next year depending on whether inflation eases further and on fiscal developments.

"A change in the monetary policy stance at the current juncture is premature," the RBI said in its statement. "However, if the current inflation momentum and changes in inflationary expectations continue, and fiscal developments are encouraging, a change in the monetary policy stance is likely early next year, including outside the policy review cycle."

Crisil, the research agency said that in the monetary policy meeting, the Reserve Bank of India (RBI) held the repo rate steady at 8% as expected. "We expect inflation to average at 6.7% in FY15 and the RBI to cut rates by April 2015. 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," it said.

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 durables 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 Shriram.