Industry bodies also expressed concern over the apex bank shifting the stance of the monetary
policy from ‘accommodative’ to ‘neutral’
New Delhi : Disappointed with the Reserve Bank’s decision to leave key policy rates unchanged, India Inc on Wednesday said a rate cut was needed to revive demand hit by the cash crunch post demonetisation.
Industry bodies also expressed concern over the apex bank shifting the stance of the monetary policy from ‘accommodative’ to ‘neutral’. “A cut in the repo rate would have boded well for the economy. Giving a push to demand which has taken a hit in the demonetisation process is critical as also the need to incentivise domestic private investment in the country which remains lackadaisical,” Ficci President Pankaj Patel said.
Assocham said more worrying is the RBI putting an end to the ‘accommodative’ stance. “The RBI, in a way, has put the ball in the court of the government for softening of the interest rates which, it said, would depend on how soon the problems of the bank non-performing assets (NPAs), recapitalisation of the lenders and re-calibrating of the small saving, are resolved. “We urge the government to take signals from the RBI seriously and address these issues. There is a strong case for fiscal support, besides the monetary measures, to generate the consumer demand and revive the investment cycle,” Assocham President Sunil Kanoria said.
He said while inflation targeting remains an important mandate of the RBI’s Monetary Policy Committee, subdued growth should also weigh on the policymakers. “We do take cognisance of the fact that banks have moved forward to revise down their lending rates over the last month. However, a more sustained effort would be required to bring a turnaround in domestic private capex cycle,” Patel said.”With compelling reasons for both sides of the debate, the monetary policy committee was left with an unenviable task.
What finally weighed on their minds were uncertainties about sticky core inflation, commodity prices and possible Fed rate hikes,” Mahindra Group CFO VS Parthasarathy said.
Naresh Takkar, MD and Group CEO of rating agency ICRA, said, “While the change in the stance to neutral from accommodative and focus on bringing CPI inflation to 4 per cent in a durable manner lent a rather hawkish tinge to the policy document, the verbal comments emphasised flexibility.” For the second time in a row, the Reserve bank today opted for a status quo in its key rates but shifted the stance of the monetary policy from ‘accommodative’ to ‘neutral’.
A comprehensive and well-balanced articulation of inflation projections
“The policy announcement is in line with expectations. The RBI has rightly indicated that it would watch Growth Trends, the Fiscal approach that is articulated in the Budget, Factors impacting inflation while also making room for inclusive growth policies in the coming months.
In the light of improved system liquidity, the focus is set to restore the short term disruptions due to demonetisation, rather than lowering the rates. RBI has also kept in view, the effective transmission of rates by banks through MCLR which has eased as an after effect of demonetization. Overall, the policy statement is a comprehensive and a well-balanced articulation of inflation projections at less than 5% and GVA at 7.4 %.”
-Ashwani Kumar, CMD Dena Bank.
Prospects of further cuts in policy rate in near future has receded
“RBI in its sixth Bi-monthly review today has maintained status quo by keeping the Policy Repo rate unchanged at 6.25%. Since RBI has changed its stance from accommodative to Neutral, the prospects of further cuts in policy rate in near future have receded. Clearly, the primary objective of inflation targeting has played a major role here as the move seems to be wary of hardening global commodity prices, strengthening USD and stickiness in domestic core inflation. The statement remains committed to maintaining headline inflation closer to 4% in a calibrated manner, as RBI remains watchful of transient impact of demonetization on price levels and output gap. As per the statement, the neutral stance will continue as it sees surplus liquidity easing out with progressive remonetisation of the economy. At the same time, RBI has lowered its GVA estimates from 7.1% to 6.9% for FY17. In a sense, RBI has moved into a cautious mode due to uncertainties in specified data points.
-Melwyn Rego, MD &CEO, Bank of India
