PHD chamber urges RBI to cut key rates by at least 50 bps

Pointing out that India's real rate of interest has reached a 10-year high, PHD Chamber has exhorted the RBI to slash the benchmark rate by at least 50 basis points in the monetary policy review on Tuesday.

"With the significant dip in WPI inflation vis-a-vis decline in international commodity prices coupled with reforms at domestic front, our real rate of interest has reached to a decadal high," PHD Chamber President Alok B Shriram said.

"In order to rejuvenate the demand scenario and reduce the costs of doing business, PHD Chamber urges RBI to reduce repo rate by at least 50 basis points from 7.25% to 6.75%," he added.

The Reserve Bank is slated to announce the third bi-monthly Monetary Policy on August 4. The industry body noted that the real rate of interest at present based on Headline inflation (WPI) stands at 9.6%, which is the highest since FY2006.

The real rate of interest stood at about 2% in FY2006, around 3% in FY2008, (-)0.9% in FY2009,(-) 3.6% in FY2011 and scaled up to 5.6% in FY2015, the Chamber said.

India has the highest real rate of interest among major emerging markets and developing economies which stands at 6.2% in 2014 as compared with Thailand (5.4%), Vietnam (4.8%), China (4.7%), Russia (3.7%) and South Africa (3.1%), Shriram said.

High interest rate makes the business environment tougher and impacts the balance sheets and future investment sentiments, he added.

The industry body highlighted that the role of corporate investments is critical for any economy to generate higher employment opportunities, expand production possibilities and economic growth.

"India's export sector has shown a negative growth trend. Therefore, a cut in repo rate will not only reduce the costs of doing business but also enhance our exporters' competitiveness in international markets," Shriram said.

A soft monetary policy stance will also induce demand, recapture industrial growth, improve exports performance and boost overall economic growth, he added.