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RBI should cut interest rates to kick-start investments: India Inc

13 Mar 2014 Evaluate

Flat industrial production and drop in retail inflation has prompted India Inc to press the Reserve Bank to ease interest rates to kick-start investments. Expressing serious concerns over the industrial output remaining flat at 0.1 percent in January, India Inc has asserted that the decline in investment and consumption demand is showing no signs of reversing owing to the prevailing high interest rates. Indian industrial output for the period April-January 2013-14 stood flat over the corresponding period of the previous year. On the other hand, CPI inflation eased to a 25-month low of 8.10% in February, as against 8.79% in January.

CII Director General Chandrajit Banerjee has asserted that the contracting retail inflation should spur the RBI to give predominance to growth and cut interest rates amid flagging investment and consumption demand, which is extremely worrisome for the country. Ficci President Sidharth Birla has asserted that depressed demand and investment conditions continue to plague the manufacturing sector and with the trend reflected in retail inflation and IIP data, there should be no reason for the RBI not to cut interest rates in the forthcoming policy announcement. Assocham President Rana Kapoor added that the negative growth of manufacturing has got serious implications for the overall growth, employment and trade balance and latest drop in inflation is a clear pointer to the Reserve Bank to immediately discard its tight monetary policy and ease interest rates so that much-needed growth stimulus can be revived. 

The central bank, which has maintained a hawkish interest rate regime in order to tame inflation, is scheduled to announce the next monetary policy on April 1. The RBI factors both retail and wholesale price based inflation data in its monetary policy. The latest decline in retail inflation is much on the expected lines of the apex bank which had hiked key interest rates by 0.25 per cent in its previous third quarter monetary policy review. However, heavy rains in the past two weeks have damaged crops in the country, which is likely to keep food inflation elevated.

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