RBI should cut the lending rates to tackle moderation in economy: FICCI

NEW DELHI: Industry chamber FICCI today suggested that the Reserve Bank should lower the policy rates to tackle the moderation in the economy, facing the headwinds of high inflation and an uncertain global recovery.

"The situation is now ripe for the apex bank to go for a rate cut and put an end to the interest rate hike cycle," Ficci said in a statement.

It said the strongest signal that can be given to investor community to maintain their faith in India's growth story "is for (the) RBI to cut interest rates and provide the necessary stimulus through monetary policy action."

Global rating agency Standard and Poor's last Friday downgraded the long-term sovereign credit rating of the US, triggering a mayhem in equity markets across the world. This is the first time the US has lost its top-notch 'AAA' rating.

Ficci said the rating action would reduce pressure on domestic prices ( in terms of softening of international crude and commodity prices) and bring down inflation at much faster pace and earlier than what has been anticipated so far.

"This implies that (the) RBI may shift its focus from minimising risk of continued inflation to conserving the growth momentum," it added.

The RBI has earlier said that containing inflation is its topmost priority, even if it comes at the cost of growth. The overall inflation remained close to double-digit mark during the April-June quarter. The figure for June was at 9.44 per cent.

In an indication that overall inflation may stay at elevated levels for the month of July, food prices climbed to a four-and-half month high of 9.90 per cent for the week ended July 30, from 8.04 per cent in the preceding week on the back of costlier onions, fruits and protein-based items.

This is worrisome considering a significant part of people's earnings goes into food expenses and the food basket contributes 15 per cent to the headline inflation.

The central bank has hiked its policy rates 11 times since March 2010 to tame an intractable inflation. The hike in interest rates is yet to reflect in moderation of high food prices, even though it has impacted the industrial growth.

The IIP (Index of Industrial Production) grew by 4 per cent during April-May 2011, against 14.4 per cent in the year- ago period.