RBI holding rates in line with market expectations: India Inc

5 Dariya News

New Delhi 04-Aug-2015

Expressing disappointment that the RBI at its monetary policy review kept interest rates unchanged, India Inc on Tuesday said the central bank's decision signals its guarded approach towards monetary easing, in alignment with market expectations."The RBI's decision to maintain the status quo on policy rates indicates a guarded approach towards monetary easing to restrain inflationary expectations and is in alignment with market expectations," Confederation of Indian Industry (CII) director general Chandrajit Banerjee said in a statement here.The Reserve Bank of India (RBI) kept its key repo rate, at which it lends for short-term to commercial banks, unchanged at 7.25 percent on Tuesday, sticking to its stand that further cuts will depend on commercial banks passing on the previous reductions to borrowers.

"The CII expects that the RBI would resume monetary easing in its next monetary policy when there would hopefully be much more clarity about the inflation trajectory, the normalcy of monsoons and the possible (US) Federal Reserve actions," he said."The decision of the central bank to keep the policy rate unchanged is disappointing for the industry," said Jyotsna Suri, president of the Federation of Indian Chambers of Commerce and Industry (FICCI)."The latest capital support provided by the government to the public sector banks should enable effective transmission into lower lending rates," she added.Kunal Shah of Kotak Mahindra Old Mutual Life Insurance said: "Given the frontloading of cut in June policy, the RBI will monitor transmissions by banks in terms of lower lending rates, full monsoon performance by September and external events like commodity prices and Federal Reserve rate policy."

"RBI has highlighted that non-food inflation uptick is worrisome and needs to be monitored carefully," Shah added."Banks have already started transmitting a rate cut. This might accelerate further as credit growth picks up.Exhorting equity and debt markets to "take the policy announcements positively", chief investment officer of Future Generali Life Insurance, Nirakar Pradhan, said: "Banks have already started transmitting a rate cut. This might accelerate further as credit growth picks up.""Unless banks are more forthcoming in passing on the 75 basis points cut in policy rates to their lending rates, recovery in consumer demand would continue to remain a distant reality, impacting banks' profitability as well," said Debopam Chaudhuri, chief economist at ZyFin Research.