India Inc hails RBI decision not to hike interest rate

Central Bank has demonstrated restraint and foresight to strike the right balance between inflation and growth: CII

Lauding the RBI's decision not to hike interest rates, India Inc today said monetary policy alone was not the answer to tackling inflation and that the government must initiate supply-side reforms and put in place better storage facilities to contain food prices.

"The RBI has demonstrated restraint and foresight to strike the right balance between inflation and growth," CII Director General Chandrajit Banerjee said.

RBI Governor Raghuram Rajan surprised the markets today by leaving key policy rates unchanged, notwithstanding persistent high inflationary pressure.

"We are happy that RBI has taken cognisance of the weak state of the industrial economy and hope that the next move will be in the direction of lowering of policy rates. At this juncture we certainly need to push all buttons to safeguard growth and revive investor sentiment," Ficci President Naina Lal Kidwai said.

"The government needs to address food prices on a war footing reviewing procurement, warehousing and logistics strategies. We need to remove impediments to movement of food, to ensure government stockpiling is not contributing to food inflation, and to act strongly against hoarding," she added.

The status quo decision came as a breather as only last week the RBI had pulled up banks for not helping it in monetary policy transmission.

"There is a strong case for banks to cut lending rates in the wake of ample liquidity in the system. They are sitting on a big cash which should be finding ways into productive investments," Assocham President Rana Kapoor said.

The short-term lending rate was kept unchanged at 7.75%, while the cash reserve ratio (CRR) remained at 4%, the Reserve Bank of India said in its Mid-Quarter Monetary Policy Review.

"Calibrated policy stance by the RBI is inspiring in the wake of volatile global economic environment and vulnerabilities on the domestic front," PHD Chamber of Commerce President Suman Jyoti Khaitan said.

The markets had expected another 25 bps hike in the short-term lending rate.

"RBI Governor should have given a special dispensation of interest rates to exports, which are key to maintaining stability on the external sector parameters like current account deficit," engineering exporters' body EEPC India President Anupam Shah said.

Since taking over as the RBI chief in September, Rajan has increased the key rate by 0.50% in two instalments.