India Inc disappointed with RBI’s decision to maintain policy rates

Mumbai : India Inc on Tuesday expressed its disappointment over the Reserve Bank of India’s (RBI) decision to maintain its policy rates unchanged in its first monetary review for the 2015-16 fiscal.

Industry chamber Federation of Indian Chambers of Commerce and Industry (FICCI) said it was hoping for a continuation of the rate cut cycle by the RBI in its first monetary policy review for 2015-16.

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“Of greater concern to industry is the fact that the transmission of the rate cuts introduced earlier by the RBI has not happened at the level of the banks,” said Jyotsna Suri, FICCI president.

Suri pointed that the decision of RBI to examine and issue guidelines for remuneration of non-executive directors, other than part-time chairman, of banks is a welcome move.

Commenting on the First bi-monthly monetary policy review of the current fiscal, Confederation of Indian Industry (CII) President Ajay S. Shriram said the RBI decision reflects a very cautious approach towards anchoring inflationary expectations.

Shriram pointed out that the RBI had enough space to cut rates given the fact that there has been a drastic decline in crude oil and commodity prices.

“A cut in policy rates even by a modest 25 basis points would have been a mood elevator and propelled industry and consumers to augment demand,” said Shriram.

“This is especially required to provide a fillip to growth in the employment-intensive auto, consumer durables and housing industry,” Shriram added.

Industry lobby PHD Chamber of Commerce and Industry, too, expressed its disappointment at the status quo maintained by RBI.

“Industry is facing a tough environment as the demand is decelerating and costs of doing businesses are rising,” said Alok B. Shriram, president, PHD Chamber of Commerce and Industry.

“There must be transmission by the banks of the front loaded repo rate cut by RBI to the lending rates,” added Shriram.

ICICI Bank’s chief executive and managing director Chanda Kochhar said the policy statement has articulated confidence in the economic scenario and the positive direction in which the economy is moving.

“There are a number of positive policy measures, such as enhancing retail investor access to the g-sec market, permitting Indian companies to issue rupee bonds overseas and permitting market-linked compensation for non-executive directors of banks,” Kochhar added.

Meanwhile, Debopam Chaudhuri, chief economist of ZyFin Research said the status quo by the RBI was on expected lines with minimal monetary transmission since the last repo cuts and weather disturbances.

“We expect credit offtake to rise as consumer demand picks up in the economy ensuring a better transmission of RBI’s policy moves going forward. We expect repo to come down by 50 bps in the current fiscal,” Chaudhuri added.

RBI Governor Raghuram Rajan, who conducted the first bi-monthly review of the monetary policy for the current fiscal year, decided to retain the repurchase rate, the reverse repurchase rate, the cash reserve ratio and the statutory ratio at existing levels.

He also projected a 7.8 percent growth for the current fiscal year, subject to a normal monsoon — over which the RBI was worried — as also an inflation rate of 5.8 percent by the end of the year, after easing to around 4 percent by August.

Rajan said the Reserve Bank adopted an accommodative policy stance since January, ensuring comfortable liquidity in the system. “Going forward, the accommodative stance of monetary policy will be maintained, but monetary policy actions will be conditioned by incoming data.”

Accordingly, the repurchase rate and reserve repurchase rate have been maintained at 7.5 percent and 6.5 percent, respectively, while the cash reserve ratio and the statutory liquidity ratio have been left untouched at 4 percent and 21.5 percent, respectively.