Hurt by slowdown, industry urges RBI to cut interest rate

NEW DELHI: Reeling under the double whammy of a slowing economy and the high cost of credit, India Inc wants the Reserve Bank to cut the key interest rate in its upcoming monetary policy.

Industry's demand for a reduction in the repo rate, currently 8 per cent, has gained momentum after wholesale and retail inflation eased in February.

"We hope for a 50 basis points cut in the repo rate as retail inflation has started receding," CII Director General Chandrajit Banerjee said.

The RBI is scheduled to unveil its first bi-monthly monetary policy statement for 2014-15 on April 1.

Assocham President Rana Kapoor urged the RBI to cut the repo rate by at least 50 basis points to bolster growth and revive business sentiment as inflation moderates.

The annual rate of inflation, based on the monthly wholesale price index, stood at 4.68 per cent in February. Retail inflation was at a 25-month low of 8.1 per cent last month.

"MSME (Micro, Small & Medium Enterprises) industry is hopeful that the RBI Governor will take cognisance of their ongoing plight and reduce repo rate by 25 basis points," PHD Chamber of Commerce and Industry Executive Director Saurabh Sanyal said.

However, most economists polled by Ficci said the RBI would keep the rate unchanged on April 1 and continue its close vigil on inflation.

In its third-quarter review of monetary policy in January, the RBI raised the key repo rate by 0.25 per cent to 8 per cent in a bid to curb inflation.

Suggesting other measures, CII said: "The RBI along with the Finance Ministry should bolster financial savings by enhancing the attractiveness of inflation-indexed bonds through better marketing and effectively communicating the likely returns of this bond."

RBI Governor Raghuram Rajan has raised the interest rate three times since he took charge in September.

At the January 28 review, when the rate was raised to 8 per cent, Rajan said the increase was needed to set the economy securely on a disinflationary path.

The Urjit Patel Committee has indicated a "glide path" for disinflation, setting an objective of below 8 per cent CPI inflation by January 2015 and below 6 per cent CPI inflation by January 2016.