RBI’s monetary policy review disappointed India Inc
By Vaibhav Aggarwal
Jan 29, 2009
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The quarterly review of monetary policy by the Reserve Bank of India (RBI) Governor D Subbarao has disappointed the India Inc. In the latest policy review, RBI has kept the key policy rates unchanged.

On Tuesday, January 27th RBI decided to keep the repo rate, the reverse repo rate, cash reserve ratio (CRR) and statutory liquidity ratio (SLR) unchanged as it presented the third quarter review of its monetary policy before the chief executives of commercial banks.

The industry association said that the economy needs cash and it was an opportunity for RBI to lower rates at the backdrop of falling inflation. Federation of Indian Chambers of Commerce and Industry (FICCI) said that the RBI has been unsuccessful in availing the opportunity of giving a push to the system by infusing additional funds.

"Inflation was expected to moderate to 3 percent by March this year. This was clearly a window of opportunity, as it would have served to further stimulate the confidence building measures initiated by the government and the RBI in the recent past," said FICCI.

Another industry lobby, Confederation of Indian Industry (CII) also feels that the situations were perfect for a rate cut. "Given the fact that inflation is correcting more rapidly than expected and the economy is facing a slowdown, the RBI could have used this opportunity to cut key interest rates further," said CII.

The Associated Chambers of Commerce and Industry of India (Assocham) also presented the same view and said that there was an expectation of a 100 basis points cut each in CRR, repo rate and reverse repo rate. President of Assocham, Sajjan Jindal said that the industry need money at "relaxed interest rates" and rate cut is essential for this. "The demand creation and liquidity availability is still an issue but will remain so until interest rates are further moderated," he said.

On the other hand, RBI's move to extend the liquidity support to mutual funds and housing finance companies from March 30th to September 30th, 2009 has been appreciated by the industry associations. RBI has extended bank's re-finance facilities by relaxing SLR maintenance by up to 1.5%.


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