Industry welcomes status quo in key lending rates

New Delhi, Dec 18: India Inc. Wednesday welcomed the Reserve Bank of India’s move to keep the key policy rates unchanged.

“CII commends the RBI Governor for this decision, which has been counter to market expectations,” said Chandrajit Banerjee, director general, Confederation of Indian Industry.

“CII has maintained that the current spike in inflation is a supply side phenomenon and therefore, a tight monetary policy would hurt growth while proving unequal to the task of tackling inflation.”

Other leading industry lobby Federation of Indian Chambers of Commerce and Industry (FICCI) too welcomed the Reserve Bank of India (RBI) decision to maintain status-quo in the key lending rates.

“RBI’s decision to keep the repo rate unchanged after two successive increases comes as a welcome breather. FICCI has been urging RBI as well as the government to bring the focus back on growth which has taken a serious beating,” said Naina Lal Kidwai, president of FICCI.

The country’s industrial output has contracted by 1.8 percent during October – from a year-on-year growth of 8.4 percent in the corresponding month of last year – due to poor performance of the mining and manufacturing sectors.

“We hope that with the new crop cycle reaching markets, high onion and potato prices are likely to ease further,” Kidwai added.

Headline inflation measured on the wholesale price index (WPI) rose to a 14-month high in November and stood at 7 percent in the previous month and 7.24 percent in the corresponding month of last year. Food prices jumped by 19.93 percent year-on-year during the month under review. They increased by 18.19 percent in October.

Prices of vegetables jumped by 95.25 percent in November year-on-year. Onion prices soared by 190.34 percent. Potatoes were costlier by 26.71 percent. Fruits became dearer by 13.73 percent and prices of eggs, meat and fish rose by 15.19 percent year-on-year during the month under review.

The country’s retail inflation measured in the consumer price index (CPI) for November rose to 11.24 percent as compared to 10.17 percent in the previous month. India’s retail inflation rose on the back of high food prices.

Associated Chambers of Commerce and Industry (Assocham) president Rana Kapoor said there is a strong case for the banks to cut the lending rates in the wake of ample liquidity in the system.

“They (banks) are sitting on a big cash which should be finding ways into productive investments. The bigger banks should take a lead in this regard now that the RBI has paused for the time being,” added Kapoor.

RBI Governor Raghuram Rajan was widely expected to go in for a third straight increase in the repurchase or repo rate after taking charge of the apex bank on Sep 4.

However, he has taken a wait-and watch approach over the current high levels of retail and wholesale inflation scenario.

The repo rate is the rate banks pay when they borrow money from the central bank to meet their short term fund requirements. Reverse repo rate is the interest rate that the RBI pays to commercial banks when they keep their surplus short term funds with the central bank.

The RBI’s decision was also welcomed by the markets. The sensitive index (Sensex) of the Bombay Stock Exchange, which had opened slightly weak at 20,568.70 points, against Tuesday’s close at 20,612.14, rose immediately after the policy update.

After hitting a high of 20,917.57 points, it was ruling at 20,872.37 points with a gain of 260.23 points, or 1.26 percent around 2.15 p.m.. All sectoral indices were also in the green.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) also made gins. It was trading up 81.25 points or 1.32 percent at 6,220.30 points.