Statement by Mr Ajay S Shriram, President, CII on Sixth Bimonthly Monetary Policy Review

Commenting on the sixth bimonthly monetary policy review, Mr Ajay S Shriram, President, CII stated that the decision of the RBI to maintain a status quo in policy rates reflects a cautious approach of the RBI while tackling the growth-inflation conundrum.

According to CII, a modest 25 bps cut would have further lifted sentiments and assured the markets that the monetary easing cycle is on course which would be followed by further cuts in rates during the course of the year. 

CII however welcomes the lowering of the statutory liquidity ratio by 50 bps which, by easing liquidity in the system, would ensure that funds would be available to the banking sector for onward lending. This in turn would provide a fillip investment and growth Mr Shriram stated that with the recent change in inflation dynamics, particularly the steep slide of global oil and commodity prices and current account deficit under control, there is enough space to maneuver policy in favor of growth. CII is hopeful that the RBI would resume its accomodative monetary policy stance in the next policy review and work in tandem with the government to bring the investment momentum back to the economy. CII is looking to see a 100 bps reduction in headline rates in the course of the year.

Conditions Suitable for Substantial Rate Cut: CII President

Commenting on the WPI data that was released today, Mr Ajay S Shriram, President, CII said that “CII welcomes the steep fall in headline inflation, which has dropped to zero per cent in November as against 1.77 per cent growth evidenced in October owing to a broad-based decline in all sub-indices, which is significantly better than market expectations. What is also noteworthy is that both food and fuel prices have entered the negative terrain during the month. This data comes close on the heels of a drop in retail inflation to a low of 4.38% in November, thereby reaffirming the moderation of the inflation print which in turn would have a beneficial impact on inflationary expectations.”

CII has said that going forward, the continuing slowdown in global commodity prices as well as the government’s resolve to rein in the fiscal deficit would prevent prices from moving upwards. According to Mr Shriram, “this should induce the RBI to rethink its cautious monetary stance and urgently move towards a growth propelling monetary policy. The RBI should not wait till the next monetary policy announcement and reduce interest rate substantially, as industrial production is in the red and investment and consumption demand are yet to show visible signs of a pick-up.”

CII Hopes for a More Accomodative Monetary Policy Early Next Year : CII President

Commenting on the status quo approach adopted by RBI in its fifth monetary policy statement released today, Mr Ajay S Shriram, President, CII stated that the “RBI, has leaned in favour of anchoring inflationary expectations in its pursuit of finding a solution to the growth – inflation conundrum which is as per market expectations.”

CII feels that at this juncture, even a symbolic cut in policy rates would have sent a strong signal down the line that both the government and the RBI are acting in concert to harness demand and take the economy to the higher orbit of growth. Industry was particularly hopeful of a rate cut considering that China has surprised the market by reducing interest rates by 40 basis points to attract investments. A rate cut would have propelled investment demand, spurred spending in rate sensitive consumer durable and given a fillip to construction activity.

 

At a time when economic recovery is still fragile and industry is growing at a faltering pace, the bold decision of the RBI to ease interest rates would have particularly benefitted the credit starved SME and improved the poor credit offtake by industry. What is more, the recent softening of inflationary momentum and the movement of consumer price index towards the RBI’s comfort zone indicates that most of the conditions for bringing interest rates down are being fulfilled.

“Going forward, CII hopes that the RBI would move in favour of growth in its next monetary policy and the new year would witness a cut in policy rates by at least 50 basis points,” added Mr Shriram.

 

RBI sends out a signal in the forthcoming policy announcement that there would be no further tightening: CII

At the pre-monetary policy meeting held by the RBI, CII has suggested that the RBI sends out a signal in the forthcoming policy announcement that there would be no further tightening and the Central Bank would start to move to a more accommodative monetary stance. 

CII has also suggested that a separate window be opened by RBI for SME financing to ensure the availability of credit at affordable rates to this important sector. 

The apex association has also suggested that exports be provided priority sector lending status, at this time. CII has also asked the RBI to support the infrastructure sector through easing of norms. For this CII has suggested that the RBI consider forbearance for financing already made available to the infrastructure sector.