Rate cycle peaked but easy money still far off: ASSOCHAM Assessment

The interest rate hike cycle has certainly peaked while the Reserve Bank of India (RBI) may still be feeling constrained to go in for an easy monetary policy, an ASSOCHAM assessment paper has noted.

It said while the business and industry want the central bank to go in for bold measures and announce major cuts in the policy rates, the expectations may not be met by the RBI, adds the ASSOCHAM paper.

There is a pressure building again on the Indian Rupee as emerging markets' currencies weaken against the USD. For us in India, the currency depreciation could mean more of imported inflation. This development along with further tapering plans of the US Federal Reserve in its bond buying stimulus programme is sure to weigh on the Governor Dr Raghuram Rajan, said Mr Rana Kapoor President ASSOCHAM.

The ASSOCHAM assessment was based more on different factors and a holistic picture and not merely the industry expectations and wish list, even though high interest rates have really been hurting growth.

While there is a great case for drop in the policy interest rates, the industry concerns may be partially addressed and this could be done by other means rather than change in the interest rates. said Mr. Kapoor.

One of the biggest concerns before the RBI and the industry today is the rising stress on bank assets in a host of sectors which are being affected severely by the economic downturn, adds the paper.

Addressing the issue of Non Performing Assets (NPAs) and finding a solution which takes a practical view of the ground situation is a key. A lot of such assets which are under stress today can be revived back to health if a pragmatic view is taken by all the stakeholders- RBI, government, banks and the borrowers, the paper pointed out.

In so far as the pure play of interest rates is concerned, there are a number of sectors like consumer durables, automobiles, real estate and MSMEs which would like RBI to at least drop the policy rate moderately, points out the ASSOCHAM paper.

After all, business confidence has to be restored both by the investment as well as demand generation. Which will lead and what will follow can play out, but let there be reduction in cost of production of which interest rate is a major component, the ASSOCHAM paper said.

The ASSOCHAM assessment paper was based on the feedback not only from the industry but also from economists, consumers, borrowers and bankers.

One of the major issues resurfacing is the depreciation in rupee value. Since we are a net import dependent economy, the currency dip immediately hits the price line. Ironically, the immediate impact is felt by the oil companies which will then pass the extra cost to the consumers pushing the economy again into a bad cycle, added Mr. Kapoor.

The RBI, has a difficult task ahead, we only expect the Governor to find a pragmatic way out, adds ASSOCHAM chief.

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