India Inc on Tuesday asked the Reserve Bank of India (RBI) to cut policy rates at its policy meeting for 2012-13, to propel sagging economic growth. RBI Governor D Subbarao met Finance Minister Pranab Mukherjee for a “routine administrative” purpose.
Rao said he would again meet Mukherjee next week, ahead of the monetary policy, to discuss the macroeconomic situation in the country. “Today’s meeting was a routine, administrative one. Next week I will come back and brief the finance minister about the macroeconomic policy before the monetary review on April 17,” the RBI Governor said.
Industry chambers met RBI officials in Mumbai to give the customary feedback ahead of the monetary policy and urged the central bank to reverse the policy rate rises. Assocham President Rajkumar Dhoot asked the central bank to cut repo rate by at least 50 basis points from the current 8.5 per cent to reduce the cost of borrowing to encourage fresh investments and spur growth.
The chamber also demanded 75 basis points cut in cash reserve rate to enhance liquidity.
“The economy is going through a very difficult patch and business confidence has plummeted. New investments have slowed down,” said Dhoot during his interaction with RBI Governor.
He said the monetary tightening has added to the woes of the low business confidence and affected investments.
The RBI has not hiked the repo rate (short-term lending rate) in the last three policy reviews, after increasing the key policy rate 13 times between March 2010 and October 2011 to tame inflation.
However, the banking regulator eased the pressure on cash flow in the system by reducing the cash reserve ratio by 50 basis points from 6 per cent to 5.5 per cent in January this year and again from 5.5 per cent to 4.75 per cent in March 2012.
At post-budget interactions, the finance minister had exuded confidence that RBI will cut policy rates in the coming months as core inflation has been coming down.
During the April-January period this fiscal, the Index of Industrial Production growth stood at 4 per cent, as against 8.3 per cent in same period in 2010-11.
The HSBC India Manufacturing Purchasing Managers’ Index indicates that India’s manufacturing sector witnessed the third consecutive month of decline in March as output and new order growth weakened.
Wholesale price-based inflation, which remained at over nine per cent in most of 2011, has started showing signs of moderation. It was 6.95 per cent in February, up 6.55 per cent in January. But, it was largely due to rise in the rate of food prices from deflation in January to over 6 per cent in February.