India Inc appreciates Rajan's last monetary policy review

India Inc appreciates Rajan's last monetary policy review

NEW DELHI: India Inc on Tuesday appreciated Reserve Bank of India's (RBI) decision to keep key policy rates unchanged and stick to the inflation target of four per cent, as Governor Raghuram Rajan tabled his last monetary policy review.

According to the Federation of Indian Chambers of Commerce and Industry, the government's decision to stick to the inflation target of four per cent is positive, and in this context, a further push to demand through lowering of interest rate would have translated into higher investments.

Harshavardhan Neotia, President, FICCI said the industrial sector requires continuous focus and while capacity utilisation rates have improved in a few segments, higher investments call for a sustained uptick in demand.

"FICCI would also like to reiterate that the process of transmission of earlier rate cuts by banks remains slow," said Neotia.

"As mentioned in the statement, we hope Reserve Bank of India would continue to work on improving the pass through of the previous rate cuts."

Business chamber Assocham said while the RBI decision to keep the policy interest rates unchanged is on the expected lines in the face of consumer inflation staying sticky, Rajan's remarks on possibility of positive impact of monsoon on inflation and continuing accommodative stance towards interest rates augur well for achieving sustainable growth.

The chamber further said it also looks forward to formation of an institutional framework for deciding the policy interest rates in sync with inflation and growth, through a Monetary Policy Committee.

"At the core of the monetary policy, is the desire to see a sustainable growth rate along with empowering the banks to lend more at competitive rates," Assocham Secretary General D.S. Rawat said.

"We hope a commendable job of cleaning up the banks' of their toxic assets would be carried forward by the new RBI Governor," Rawat added.

The chamber emphasised the need for higher infusion of capital in the banks which remain under-capitalised for their full scale lending. It also added that the RBI's new initiative to ease the KYC (Know Your Customer) norms should help further financial inclusion programme of the government.

"Moving beyond the interest rate is also important since along with the cost of borrowing, the ease of borrowing also matters," Rawat said.

Arundhati Bhattacharya, Chairman, State Bank of India (SBI) said the RBI's decision to maintain status-quo was as per market expectations.

"The decision to frontload liquidity provisions through an announcement of OMO (open market operations) is a well thought out move as capital flows have been relatively slow this year given the global uncertainties, resulting in lower net foreign exchange acquisition," said Bhattacharya.

"We believe transmission of rates will happen gradually over the next few months as credit growth picks up pace."

Similarly, Managing Director and Chief Executive Officer of YES Bank Rana Kapoor said: "In the coming months, the disinflationary impact will be upheld by a favorable monsoon and structural policy reforms instituted by the government. Hence, notwithstanding the current pause, this will engender 50-100 bps (basis points) space for incremental monetary easing before end of FY17."

However, the real estate experts maintained that the impact of RBI policy on the real estate sector shall not be good until and unless the housing loan rates are reduced.

"In earlier times the housing loan rates used to be 7% but the prevailing rates are above 9.25%. The revision in repo rate may have positive impact on the economy but has a negligible benefit for the real estate sector," said Parveen Jain, President, National Real Estate Development Council.

"The real estate sector feels disappointed with no change in policy rates," said Shishir Baijal, Chairman and Managing Director of Knight Frank India, adding: "A policy rate cut by RBI would have provided a further boost to the industry which is on the cusp of revival whilst improving sentiments going forward."