New Delhi: Industry heads, economists and bankers Monday expressed disappointment and unhappiness with the Reserve Bank of India's decision to keep its key policy rate, or repo rate, unchanged in the mid-quarter review of its annual monetary policy earlier in the day, saying that a cut in rates is needed to stimulate a slowing economy and that the central bank's primary concern of keeping inflation under check will not be allayed by keeping interest rates high.
Following are the comments from industry leaders:
The Associated Chambers of Commerce and Industry of India (ASSOCHAM) President Rajkumar Dhoot
"A cut in the policy rates could have given some boost to the industrial sector and helped the economy regain the growth momentum... This particularly warranted a cut in the interest rates as the growth rates had plummeted to 5.3% in the last quarter."
HDFC Bank's Chief Economist Abheek Barua
The RBI announced its mid-quarter review leaving key policy rates unchanged and the market considerably disappointed... Today's decision to keep rates on hold suggests that the spotlight is back on the headline reading for inflation and its structural drivers... There is every chance that the RBI could cut repo rates going forward... We are therefore retaining our call for 25-50 basis points repo rate cuts for the remainder of the year supplemented by 25-50 basis points of CRR (cash reserve ration) cuts and Rs 1,00,000 cr (Rs 1 trillion) of OMO (open market operations) buybacks.
Federation of Indian Chambers of Commerce and Industry (FICCI) Secretary General Rajiv Kumar
The RBI decision to not reduce the repo rate is even more difficult to understand in light of its own admission that 'the persistence of overall inflation both at the wholesale and retail levels, in the face of significant growth slowdown points to serious supply bottlenecks and sticky inflation expectations' (emphasis ours). It is not clear at all how the supply bottlenecks and high level of vegetables and protein prices, which is the main cause of persistent inflation, will be tackled by keeping interest rates high. Therefore, a cut in the repo rate would have been very timely and may have provided some boost to the already flagging growth.
Confederation of Indian Industry (CII) Director General Chandrajit Banerjee
CII appreciates the RBI's position that it is the only institution mandated with containing inflation. However, the current situation in the economy and industry needs deeper introspection by the RBI and the Government. It is quite evident that space for fiscal maneuverability is limited given the very large fiscal deficit and it is also apparent that the inflationary pressures being alluded to are results of structural problems on the supply side. Therefore, CII and industry are disappointed by the monetary stance taken by the RBI in today's policy announcement.
IIFL Head of Research Amar Ambani
"Doubts persist over the prospects for the eurozone amid soaring borrowing costs for Spain and Italy. Also, the pro-euro parties are reportedly seeking renegotiation of the bailout terms. This might lead to uncertainty for some more time. Investors will also keep an eye on the presidential election and its impact on UPA II's economic policies. The southwest monsoon has made a rather slow start, adding to the growing list of problems for India... We would urge a little bit of caution because the upside from here may be capped."
Cushman and Wakefield Executive Managing Director, South Asia, Sanjay Dutt
"From the point of the real estate sector, a further rate cut would have resulted in positively influencing the sentiments within the sector. However, reduced CRR and Repo/Reverse rate cuts do not automatically translate into reduced interest rates for mortgages, which would have pushed the sales volumes in the residential section up higher. Banks have to take into account other factors before deciding on lowering their interest rates for retail customers. For developers, in any case, financing options from the banking industry have been restricted since some time and they have had to mainly depend on other sources such as ECBs and PE investments. Hence, they will mostly remain in a status quo. The main concern for both buyers and developers is related to the inflationary trends that still persist in the economy, as their finances get impacted on a much bigger level. Our outlook for the sector remains cautious, but still positive as there are transactions still taking place at a sustainable pace and volume."
Kotak Mahindra Bank K V S Manian President - Consumer Banking
"The monetary policy came as a severe disappointment to the market, which had built up strong expectations of rate cut and a CRR cut. However, the fact is that the headroom available on monetary side was very limited. The clouds of inflation, strengthening international commodity prices, our current account deficit , the European stalemate, global QE3, etc. have not completely passed over yet. RBI has sent a strong signal of 'independence' seeking commensurate effort on the fiscal and governance side to resolve the current situation. Delhi and Mumbai are two horses that pull this economy 'carriage'. The Delhi horse cannot transfer all burden to the Mumbai horse. The next 6 to 9 months will require a careful balancing of fiscal and monetary policy to ensure growth and limit inflation." - KVS Manian, President - Consumer Banking, Kotak Mahindra Bank
ICRA managing Director and CEO Ltd Naresh Takkar
Contrary to expectations of a 25 bps cut in the Repo rate following the weak growth indicators, the RBI has maintained the policy rate in its mid quarter credit policy. Notwithstanding its concerns regarding the slowdown in growth, the RBI's focus seems to have shifted again towards managing inflationary expectations in view of persistent supply constraints, inadequate adjustment in demand and double-digit retail inflation. RBI's decision to provide higher refinance limits to Banks for extending export credit is positive as this would hasten structural adjustment through higher exports, while improving systemic liquidity (by around Rs. 30,000 crore) and supporting the Rupee.