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Mixed reaction from industry to RBI's credit policy review


By Unregistered Visitors, Section Finance & Taxes
Posted on Tue Jan 29, 2008 at 06:44:50 PM EST

Mixed reaction from industry to RBI's credit policy review

New Delhi (PTI): India Inc sung in different tunes-- from outright disappointment to "understanding" focus on price stability-- while reacting to the Reserve Bank's decision on Tuesday to keep the key rates unchanged.

Belying expectations of a softer interest rate regime, the Reserve Bank in its third quarter review of of monetary policy kept banks rate, repo rate, reverse repo rate and cash reserve ratio unchanged in a bid to maintain financial and price stability.

The Confederation of Indian Industry said the focus on keeping inflation under control was "understandable", while Assocham and exporters' body FIEO expressed disappointment over status quo in bank rate. They said easing the monetary policy would have infused growth momentum in the sectors showing signs of sluggishness.

"There is an underlying focus on stability, which is conservative. In uncertain times, this is strategically a good stance, as long as the RBI explicitly makes it known that it can take any action pertaining to key rates if the situation demands," CII said in a statement.

However, Assocham expressed its displeasure over "indifference" by the central bank which left most of the key parameters like bank rate, cash reserve ratio, repo and reverse repo unchanged.

"We fear that the continued policy indifference may compel the industry to postpone its investment plans in expectation of demand slowdown, Assocham President Venugopal Dhoot said.

He said the restraint shown by RBI would make it difficult for some industry segments to cope up with the slackening demand, rising imports and high borrowing cost. He said the overall policy stance was to maintain price stability.

Echoing similar disappointment, another industry body FICCI said that with the slowdown in industrial growth, RBI could have done some rethinking on the interest rate regime and "finetuned the rates".

"High interest rates have taken a big toll on several sectors of the economy, particularly the small and medium enterprises...with inflation moderated to tolerable limits, the RBI could have shifted its emphasis to sustaining the overall growth momentum," FICCI President Habil Khorakiwala said.

Exporters, reeling under a severe impact of rupee rise warned that the monetary policy would lead to surge in capital flows from abroad and creating inflationary pressures in the economy. They said the country's export competitiveness has been badly affected due to large inflows of overseas money.

President of the Federation of Indian Export Organisations (FIEO) Ganesh Kumar Gupta said there has been a "dramatic appreciation in currency over the last two years on a tide of huge global liquidity which has impacted export competitiveness severely reducing margins."

He said it was estimated that the country has suffered a losses of two per cent of its GDP in 2007 due to high foreign exchange reserves.

The PHD Chamber of Commerce and Industry said a rate cut would have reinforced the growth momentum in an otherwise lacklustre industrial growth.

"RBI has been over cautious in its approach as it is driven by liquidity management and price stability," the Chamber President L K Malhotra said

Mixed reaction from industry to RBI's credit policy review

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