India Inc has expressed disappointment over the Reserve Bank of India’s (RBI’s) decision not to change repo and reverse repo rate in its review of the credit policy. The Confederation of Indian Industry (CII) said many sectors, including manufacturing, were seeing a decline and there were no sign of reversal in the slowdown.
“The small scale sector is the most affected and it is indeed worrying that credit to small enterprises has fallen off sharply,” CII said. The Federation of Indian Chambers of Commerce and Industry (Ficci) said that RBI had failed to avail itself of the opportunity to provide stimulus to the Indian economy by infusing extra money into the system through interest rate cuts.
“Inflation was expected to moderate to 3 per cent by March. This was clearly a window of opportunity as it would have served to further stimulate the confidence-building measures initiated by the government and RBI in the recent past,” Ficci said. The Associated Chambers of Commerce and Industry (Assocham) said that the need of the hour was that Indian companies got money at relaxed interest rates.
“The demand creation and liquidity availability is still an issue but will remain so until interest rates are further moderated”, Assocham President Sajjan Jindal said.
Goldman Sachs said the regulator needed to keep a tab on the falling inflation figures. “We were expecting a 50 basis point cut in repo and reverse repo rates. We think immediate action is necessary given the long lags with which the monetary policy influences lending rates and the overall activity, rather than wait for activity to deteriorate further.”
Bank of America MD&CEO Vishwavir Ahuja said that the impact of the recently announced stimulus package and aggressive rate cuts will be reflected in the credit market in the months to come.
“However, until then liquidity management will continue to remain an important area for RBI in order to mitigate the impact of global financial market volatility,” he added.
Similarly, Yes Bank MD & CEO Rana Kapoor said the key challenge for banks would be to channelise higher credit flows amidst an economic downturn without compromising on asset quality. Though the central bank refrained from cutting the key rates, this provides for further room to counter any emergency situation.
“The credit policy clearly highlights its desire to respond swiftly and effectively with appropriate monetary tools in a calibrated manner as and when the situation demands. The market should expect benchmark rate changes based on economic conditions,” said Reliance Money Director & CEO Sudip Bandyopadhyay.