ASSOCHAM

ECONOMY

ASSOCHAM seeks at least 100 BSP cut in

 

interest rates; no baby step by RBI will do

 

ASSOCHAM today made a strong demand for a big rate cut, stating 25 basis point reduction in REPO rate by the Reserve Bank of India (RBI) will only be a baby step which is quite inadequate to revive the growth momentum in the economy.

    

"It is time, the Reserve Bank of India went in for a bold move and slashed the REPO rate by at least 100 basis points. Only then, the prolonged high interest rate cycle will be broken and the growth would get some breathing space for revival. The 25 bps cut will only be a symbolic and would not make much of a difference excepting, maybe a short-lived rally in the stock market”, ASSOCHAM President Rajkumar N Dhoot said on the eve of the RBI coming out with a credit policy review tomorrow.

 

Mr. Dhoot said the tight money policy pursued by the RBI has only led to demand depression hitting the industrial growth and affecting the overall business confidence. Sales in the interest-sensitive automobiles and the housing sectors, which have a cascading economic effect, have remained flat or declined from the quarter to quarter.

 

“The answer to the inflation lies in boosting supply and removing those constraints blocking it. It does not lie in demand depression. In fact, once supply is given a boost, it will serve the double purpose of controlling inflation and jacking up the industrial growth. By staying obsessed with choking the credit line for controlling price rise, the RBI has not really succeeded. We strongly advise the central bank to change tack and shift gears decisively. Any half-hearted measures would neither take the economy here or there", added Mr Dhoot.

 

Besides, the RBI should go for cut in the cash reserve ratio as the banking system is facing a huge deficit in liquidity. According to some estimates, the deficit is about one trillion Rupees. "Any weak move by the RBI on the growth front will upset the mood in the economy, which only recently had started picking up. Let the year 2013 be a year of growth revival by some out of the box solutions, " the ASSOCHAM President pointed out.

     

He said that the economy needs a boost both from the monetary and fiscal authorities. While the RBI needs to go in for easing of monetary policy, the Finance Ministry should ensure that no new taxes are imposed on the industry, which is already reeling under a severe demand slowdown. Moreover, the government finances need also be controlled so that the global rating agencies do not breathe down our neck.

 

“ ASSOCHAM does not agree with those who say that the 25-50 bps interest rate cut would be good enough. On the other a decisive step by RBI can be a game-changer in 2013,” said the chamber President.