With inflation at 5 year low, RBI Monetary Policy Committee must cut interest rates: ASSOCHAM to Governor Patel

Citing inflation at a five year low and deceleration in the factory output, the ASSOCHAM has written to the RBI Governor Dr 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 meets on August 2.

After a long duration of consistency in the Repo rates, ASSOCHAM believes that the RBI could reduce the policy rate by 25 basis points, the chamber's Secretary General Mr D S Rawat said in his letter to the RBI Governor, ahead of the impending credit policy review by the Monetary Policy Committee.

It said a strong case was made out for a reduction in the interest rates, keeping in mind new lows in both CPI and WPI inflation. The consumer price index (CPI) in June reached an almost-5 year low at 1.54%, from 2.18% in the previous quarter. The wholesale price index (WPI) also eased to 0.9% from 2.17%.

The case for rate-cut is additionally strengthened by easing of food inflation to (minus)-2.12% from 0.31%. Good monsoon forecasts for the current financial year have additionally created a stance for further reduction in the food inflation. The Current Account Deficit also continues to remain stable on account of stability in the crude-oil prices, since last one year.

The deceleration in factory output growth could further bolster the case for a rate cut next month to boost Asia's third-largest economy, which grew 6.1 per cent in the January-March quarter - its weakest pace in more than two years, the chamber said .

Hoping for a due consideration of its demand for a rate cut by the Monetary Policy Committee, the ASSOCHAM said, the RBI also needs to come out with a special dispensation for loan recovery from the Small and Medium Enterprises as also the mid-sized corporates. We also expect in the policy some directional guidance and softer measures on recovery from SMEs and Mid-corporate.'

Making a plea to the MPC, through Dr Patel, Mr Rawat said given the high leverage causing a big drain on the balance sheets of a large number of companies, a cut in the lending rates would be a big relief to different sectors of the economy.

We hope that our concerns and suggestions shall be given their due consideration.

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