Citing inflation at a five-year low and deceleration in the factory output, the industry chamber Associated Chambers of Commerce and Industry of India (ASSOCHAM) ahead of the meeting of the Monetary Policy Committee scheduled on August 2, has urged the Reserve Bank of India (RBI) Governor Urjit Patel to cut interest rates. After a long duration of consistency in the Repo rates, ASSOCHAM believes that the RBI could reduce the policy rate by 25 basis points (bps).
The industry chamber said a strong case was made out for a reduction in the interest rates, keeping in mind new lows in both the Consumer and Wholesale Price Index (WPI) inflation. It also said that the deceleration in factory output growth could further bolster the case for a rate cut next month to boost Asia's third-largest economy, which grew 6.1% in the January-March quarter - its weakest pace in more than two years.
Retail inflation in India during June dropped to a record low of 1.54%, while industrial production data showed that the growth in factory production fell to 1.7% in May, from 8% in the same month a year ago. The WPI also eased to 0.9% from 2.17%. ASSOCHAM said the case for rate-cut is additionally strengthened by easing of food inflation to (-) 2.12% from 0.31%. It added that good monsoon forecasts for the current financial year have additionally created a stance for further reduction in the food inflation.
Hoping for a due consideration of its demand, the ASSOCHAM further said the RBI also needs to come out with a special dispensation for loan recovery from the Small and Medium Enterprises, as also the mid-sized corporate, apart from directional guidance and softer measures on recovery from SMEs and Mid-corporate.
