RBI must cut interest rate by at least 25 basis points: Assocham

It made a strong case citing five-year low inflation and deceleration in the factory output

Ahead of the Reserve Bank of India's (RBI) forthcoming monetary policy review next week, industry chamber Assocham (Associated Chambers of Commerce and Industry of India) has on Sunday urged the apex bank to cut interest rates in view of latest data that shows inflation at a five-year low and deceleration in the factory output.

"Citing inflation at a five-year low and deceleration in the factory output, the Assocham has written to RBI Governor Urjit Patel, making out a strong case for at least 25 basis point cut in the policy interest rate when the RBI Monetary Policy Committee (MPC) meets on August 2," an Assocham said in New Delhi.

"After a long duration of consistency in the repo rate, Assocham believes that the RBI could reduce the policy rate," chamber Secretary General D S Rawat said in his letter to the RBI Governor.

Retail inflation in India during June dropped to a record low of 1.54 per cent, while industrial production data showed that the growth in factory production fell to 1.7 per cent in May, from 8 per cent in the same month a year ago.

"The wholesale price index (WPI) also eased to 0.9 per cent from 2.17 per cent. The case for rate-cut is additionally strengthened by easing of food inflation to (minus)-2.12 per cent from 0.31 per cent. Good monsoon forecasts for the current financial year have additionally created a stance for further reduction in the food inflation," Assocham said.

At its second bi-monthly monetary policy review of the fiscal on June 7, the RBI maintained status quo on its repo, or short-term rate for lending to commercial banks, at 6.25 per cent.

In doing so, the policy statement said the six-member MPC was guided by the risks to inflation. It was the fourth policy review in succession that the MPC had kept the repo rate unchanged.

Since the MPC started setting rates in October last year, this was the first time it did not take a unanimous decision, with five members voting in favour of holding the rate and one opposing.

Three of the six members of the MPC are government nominees, while the others are from the RBI.