Assocham expects 0.25% cut in policy rate

Equally important thing is the normalisation of other aspects to monetary policy so that we are at least back to normal functioning of monetary policy, says Rana Kapoor

Reserve Bank of India is likely to cut interest rate by 0.25% in its upcoming policy review as inflation is high, industry chamber Assocham said.

 

"Both CPI and WPI at the heightened level. We are looking at some upward revision of repo rate of at least 25 basis points. We are largely of the view that we have to suffer in the short-term," Assocham President Rana Kapoor said.

 

"Equally important thing is the normalisation of other aspects to monetary policy so that we are at least back to normal functioning of monetary policy," he said.

 

Currently, he said, the spread between the repo and marginal standing facility (MSF) rates is 1.5%, higher than the usual spread of 1%. The spread needs to be normalised to 1% by reducing MSF rate further.

 

Due to the ongoing festive season and forthcoming state elections, funds withdrawal from the banking system is likely to be around Rs 700-800 billion (Rs 70,000-80,000 crore), he said.

 

This will constrain money market liquidity further and limit smooth flow of credit to productive sectors of the economy, he said.

 

In this context, the RBI could look at infusing Rs 700-800 billion ((Rs 70,000-80,000 crore)) liquidity through a combination of CRR cuts (0.5%) and Open Market Operations purchases, he added.

 

Speaking about making Mumbai as financial capital, Kapoor said: "well established International Financial Centres like New York and London have grown, complementing growth of their home economies. More recently, Singapore, Hong Kong, and Dubai have also emerged as IFCs attracting MNCs from various sectors."

 

India is fortunate to have Mumbai as its financial capital accounting for 20% of India's GDP, which has the strength and legacy as Financial Centre in the region, and is home to some of the finest human capital.

 

With increasing global integration, an estimated USD 48 billion will be the size of financial product purchases by Indian households by 2015. This in itself warrants development of Mumbai as its International Financial Centre, he added.