RBI could have leveraged the opportunity of ‘abating inflation’ to effect a rate cut: India Inc

India Inc, expressing its disappointment over RBI's status quo stance yet again has underscored that central bank could have leveraged the opportunity of abating inflation risks to effect a rate cut, citing that high cost of credit has been dissuading industry from undertaking capacity expansion. 

As per CII’s Director General Chandrajit Banerjee, in a scenario where industrial growth continues to be sluggish and CPI inflation moderating and above all the overall inflation risk gradually abating due to the improvement in monsoon condition, Reserve Bank of India could have taken this as an opportunity to render a rate-cut. He further stated that high cost of capital had been dissuading industry from undertaking capacity expansion and was causing financial stress among firms where demand was credit driven.

In contrast to CII, other industry bodies -- Ficci and PHD -- welcomed the RBI's decision to lower banks' minimum bond holding requirements, known as SLR, by 50 basis points, citing the move will help augment liquidity in the system and channelise fund flow to productive sectors of the economy, even as Assocham termed it a 'symbolic move'.

Meanwhile, concerned over the impact of weak monsoon on food prices, RBI decided to keep the key policy rate unchanged but slashed statutory liquidity ratio (SLR) by 0.50% to unlock about Rs 40,000 crore into the system. On the inflation front, though RBI acknowledged the moderation in CPI headline inflation for two consecutive months, despite the seasonal firming up of prices of fruits and vegetables since March mainly on account of both base effects and the steady deceleration in CPI inflation excluding food and fuel, it sounded a word of caution as it underscored that it would continue to monitor inflation developments closely and would remain committed to the disinflationary path of taking CPI inflation to 8% by January 2015 and 6% by January 2016. Besides, it also flagged an upside risk target of 6% by January 2016, warranting a heightened state of policy preparedness to contain these risks if these materialized.