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  3. RBI should refrain from hiking rates in next monetary policy review: ASSOCHAM

RBI should refrain from hiking rates in next monetary policy review: ASSOCHAM

05 Feb 2018 Evaluate

The industry chamber Associated Chambers of Commerce and Industry of India (ASSOCHAM) in a post-Budget paper has said that the Reserve Bank of India (RBI) should not overreact to the high yield pressures of the bond market, along with the government promising a substantial revision in the Minimum Support Price (MSP) for farmers and it should refrain from hiking the benchmark policy lending rates in its sixth bi-monthly monetary policy statement for 2017-18. He also said that some of the macro indicators, including pegging of higher fiscal deficit of 3.3% for FY19 and 3.5% of the GDP for the current fiscal, look difficult, but reaction of the bond market to the budget-related would ease out soon.

ASSOCHAM has said that the worries over the minimum support price (MSP) leading to increase in retail inflation are exaggerated as there is no MSP for the vegetables at the ground level. It also said that for ‘Operation Greens’ for onion and potato, announced in the Budget, entire institutional mechanism would have to be worked out by the Niti Aayog along with the states, so is the situation with regard to the MSP for several other agri commodities. It noted that while the Niti Aayog and the states would bear in mind the farmers’ interest, the institutional mechanism would surely strike a balance between remuneration to the growers as also the impact on the retail prices. So, it added that the immediate fear may be an over-reaction and the RBI should not get influenced while fixing the Repo (policy lending) rates.

Talking about stock market valuations seeing a decline, the industry chamber said that it is a healthy correction which was overdue. It also said that a lot of froth and unnecessary exuberance had gathered around the stocks, particularly in the mid-cap space and there was no justification while matched against the corporate earnings. It pointed out that while the government has realised this fact, it is time RBI joined the initiative by ensuring that the growth which seems visible, should be encouraged by at least not revising the interest rates upward.

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