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Rediff.com  » Business » India Inc unhappy with RBI stance

India Inc unhappy with RBI stance

October 30, 2012 17:56 IST

Indian flagIndia Inc on Tuesday expressed disappointment over Reserve Bank of India's decision to keep interest rates unchanged and hoped it would soon take policy action to boost investments and revive economic growth.

Industry body Assocham said the focus continues to be on rising inflation and not on the country's economic growth.

"The industry is disappointed that the key policy rate, the repo rate, has not been reduced. The focus continues to be on managing inflation with the growth continuing to suffer," Assocham president Rajkumar Dhoot said.

The efforts to contain inflation by increasing interest rates in the last two years have not really helped the economy.

Rather high rates have impacted industry's investmentthus affecting the growth momentum, the chamber said in a statement.

Sharing similar views, Confederation of Indian Industry hoped that the RBI would intervene sooner than later to cut repo rates which would help in boosting industrial production and reviving the economy.

Federation of Indian Chambers of Commerce and Industry said it feels while a cut in rate is imperative to revive investment growth, there would be some leeway now for banks to lend more via the cash reserve ratio cut.

The Reserve Bank, in its mid-year monetary policy review, on Tuesday left the key interest rates unchanged but reduced CRR by 0.25 per cent to infuse additional liquidity of Rs 17,500 crore (Rs 175 billion) into the financial system.

Accordingly, the CRR or the portion of deposits banks have to park with the RBI now stands at 4.25 per cent while the repo rate, at which RBI lends to the system, has been retained at 8 per cent.

"This would help the liquidity position and also send a signal that the RBI is softening its stand on the monetary side", CII Director General Chandrajit Banerjee said.

Besides, RBI has revised downwards GDP growth estimate to 5.8 per cent from the earlier 6.5 per cent, while increased its March-end headline inflation forecast to 7.5 per cent.

It is the second time since the beginning of the fiscal that RBI has revised its estimate on both the aspects.

The Wholesale Price Index inflation for September rose to 7.81 per cent from 7.55 per cent in August.

Indian economy recorded a growth of 5.5 per cent in the first quarter of 2012-13.

"The reduction in CRR by 25 basis points, while leaving the policy interest rate untouched, reflects that inflation remains a near-term concern for the RBI," Ficci said.

CII said it appreciates the position of the RBI on inflation and understands that it is higher than the comfort level.

"Since India does not follow a system of inflation targeting, it is implicitly understood that in situations where risks to growth become too high, RBI has freedom to act to ensure that growth is provided some traction, even while efforts are made to anchor inflation and inflationary expectations", Banerjee said.

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