Industry urges RBI to cut interest rate as inflation dips

Present outcome certainly gives scope for cutting the interest rates in a bid to create to improve domestic supply response, says Assocham Secretary

Relieved by decline in inflation, the industry today urged the Reserve Bank to lower interest rates to provide a fillip to the sluggish economic growth at a time when industrial output has turned negative.

"The easing of inflation at a time when industrial growth continues to be in the red should induce RBI to review its monetary policy stance and cut policy rates to rejuvenate growth, which has been hit by high interest costs, flagging investments and subdued demand," CII Director General Chandrajit Banerjee said.

Wholesale inflation declined to a 5-month low of 6.16% in December, providing space to RBI to ease interest rates and prop up growth.

"While achieving a sustained moderation in WPI is an issue, the present outcome certainly gives scope for cutting the interest rates in a bid to create to improve domestic supply response," Assocham Secretary General D S Rawat said.

RBI must give a serious consideration to this suggestion while preparing the monetary policy to be announced," he added.

With industrial output contracting by 2.1% in November, the worst performance in six months, industry has sought a reduction in policy rates to help boost growth.

"Since industrial growth is in the negative trajectory, at this juncture, it is inevitable to reduce the repo rate to rejuvenate the industry sector growth," PHD Chamber of Commerce President Sharad Jaipuria said.

Inflation in food articles was 13.68% in December as against 19.93% in the preceding month, according to the Wholesale Price Index (WPI) data released today.

RBI kept key policy rates unchanged last month on expectations that wholesale and retail inflation would ease. The central bank is scheduled to announce its quarterly monetary policy review on January 28.

It had increased the key policy rate (repo) twice between September and November to check inflation. The rate is currently 7.75%.