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RBI needs to cut interest rate by 25 basis points: Assocham

Author: IANS/Monday, July 31, 2017/Categories: Regulatory

RBI needs to cut interest rate by 25 basis points: Assocham

New Delhi - Ahead of the Reserve Bank of India's (RBI) forthcoming monetary policy review next week, industry chamber Assocham has urged the apex bank to cut interest rates in view of latest data that shows inflation at a five-year low and deceleration in the factory output.

"Citing inflation at a five-year low and deceleration in the factory output, the Assocham has written to RBI Governor Urjit Patel, making out a strong case for at least 25 basis point cut in the policy interest rate when the RBI Monetary Policy Committee meets on August 2," an Associated Chambers of Commerce and Industry of India (Assocham) said.

"After a long duration of consistency in the repo rate, Assocham believes that the RBI could reduce the policy rate," chamber Secretary General D.S. Rawat (pictured) said in his letter to the RBI Governor. 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 wholesale price index (WPI) also eased to 0.9% from 2.17%. The case for rate-cut is additionally strengthened by easing of food inflation to (minus)-2.12% from 0.31%. Good monsoon forecasts for the current financial year have additionally created a stance for further reduction in the food inflation," Assocham said.

At its second bi-monthly monetary policy review of the fiscal on June 7, the RBI maintained status quo on its repo, or short-term rate for lending to commercial banks, at 6.25%. 

In doing so, the policy statement said the six-member Monetary Policy Committee (MPC) was guided by the risks to inflation. It was the fourth policy review in succession that the MPC had kept the repo rate unchanged. 

As the MPC started setting rates in October last year, this was the first time it did not take a unanimous decision, with five members voting in favour of holding the rate and one opposing.

Three of the six members of the MPC are government nominees, while the others are from the RBI.

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S Vijaykrishnan
S Vijaykrishnan

IANS

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