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RBI's Monetary Policy aimed at more Comfortable Inflation Situation Print E-mail
Written by Anand   
Wednesday, 26 October 2011
New Delhi: The Union Finance Minister Shri Pranab Mukherjee has said that today’s monetary policy announcement by Reserve Bank of India (RBI) would help in getting us back to a more comfortable inflation situation soon while leaving scope for growth to pick up in the second half of current fiscal year.

Mukherjee was responding to the RBI announcement vide which it has increased the policy repo rate by 25 basis points from existing 8.25% to 8.50%. The reverse repo rate has also gone up from 7.25% to 7.50%. He said that the RBI Governor has chosen to reinforce his commitment to moderate inflation and check inflationary expectations, in the face of continued stickiness in headline inflation.

Mukherjee said that this has implications for credit costs and investment growth. The Finance Minister said that we are looking at all options for strengthening investment sentiments in the coming months.

"As pointed out by the RBI, there should be much greater emphasis on encouraging investments by the private sector. CII believes this can be achieved by removing uncertainties on the policy front. Some areas that require immediate attention include clarity on policies with regard to land and the availability of critical inputs such as electricity. Fiscal consolidation is also critical for keeping a lid on interest rates. At the same time, CII would like to see intervention by RBI in the currency exchange rate since a weak Rupee in an high inflation situation is proving to be extremely detrimental," said Mr Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII).

ASSOCHAM has expressed serious concern over the yet another interest rate hike by the RBI which will further weaken economic growth and impact all other indicators.

Depreciating rupee, economy showing signs of slowdown and rising inflation are indeed worrying, said Mr Dilip Modi, president of The Associated Chambers of Commerce and Industry of India (ASSOCHAM). However, he appreciated the RBI’s move to de-regulate savings bank deposit rates which will benefit a large number of people.

A recent ASSOCHAM business confidence survey amply demonstrates that a large number of corporates have put fresh investments on hold due to rising cost of credit. This has led to a slowdown in industrial activity and may result in job losses. Interest rate sensitive sectors like real estate and automobiles have been particularly hit in recent months.

The RBI has raised benchmark interest rates 13 times in the past year-and-a-half. Yet, the inflation continues to near double digits. On top of it, the depreciating value of Indian rupee has imposed higher costs of imported intermediates which could slow down GDP growth during 2011-12 to 7.5 per cent or so, said Mr Modi.

Structural imbalances in agriculture, infrastructure capacity bottlenecks, distorted administered prices of several key commodities and pace of fiscal consolidation left little room for the RBI but to increase interest rates, he said.

ASSOCHAM thus believes these issues need to be addressed by the government promptly and adequately to reflect the RBI’s concerted actions on taming inflation.

Last Updated ( Wednesday, 26 October 2011 )
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