New Delhi/Mumbai: Indian industry Monday expressed disappointment over the Reserve Bank of India’s (RBI) decision to keep key lending rates unchanged to control inflation while the economy is facing a slow-down. “CII (Confederation of Indian Industry) and industry are disappointed by the monetary stance taken by the RBI in today’s (Monday’s) policy announcement,” CII director general Chandrajit Banerjee said, adding, “It needs to be understood that with a steadily declining GDP (gross domestic product) growth millions of livelihoods are under threat, and therefore a very inflation-centric policy measure appears to have missed the bigger picture.”
The re-purchase rate remains unchanged at eight percent, which automatically keeps the reverse re-purchase rate at seven percent. The re-purchase rate is the interest the central bank levies on short-term borrowings by commercial banks. The reverse re-purchase rate is the interest on short-term lending.
The RBI declared, however, that it was ready to provide relief in situations arising out of the on-going turbulence in the global economy. “Recognising that the global situation is turbulent, the Reserve Bank stands ready to use all available instruments and measures to respond rapidly and appropriately to any adverse developments,” the apex bank said in a statement.
The apex bank said that since the last rate cut, global macroeconomic indicators had deteriorated and that headline inflation numbers were far above comfort range.
The Federation of Indian Chambers of Commerce and Industry (FICCI) said a cut in key lending rates would have been timely as the capital-intensive mining and manufacturing sectors were slowing down. “A cut in the repo rate would have been very timely and may have provided some boost to already flagging growth”, said Rajiv Kumar, FICCI secretary general.
Recent data from the Central Statistics Office showed India’s industrial output grew marginally by 0.1 percent in April.
The stock markets will now have to depend on government action and a good monsoon to sustain upward trends, according to Dipen Shah, head of fundamental research at Kotak Securities. “From the market’s perspective, this is disappointing, and it will now have to wait for government action and the monsoon’s progress to see any sustained uptrend,” Shah said.
Simon Rubinsohn, chief economist at Royal Institution of Chartered Surveyors, said that the RBI’s statement about providing liquidity relief, as and when required, was an indication of a possible cut in the near future. “Our suspicion is that a further interest rate cut is likely over the coming months with the prospect of a stronger response from the RBI – if the headline inflation picture does begin to reflect the more benign core trend,” Rubinsohn said.
On sectoral basis, rate sensitive industries such as banks, realty and auto stocks were hit by the news on the Bombay Stock Exchange (BSE).
The bank index at the BSE fell 365.78 points. Realty sector stocks too took a hit with the sectoral index at BSE down 45.08 points at 1,577.78. Automobile index too fell by 58.75 points and stood at 9,155.05.
On the realty sector front, Sanjay Dutt, executive managing director, south Asia, for Cushman & Wakefield said that the outlook for the industry remained cautious. “Our outlook for the sector remains cautious, but still positive as there are transactions still taking place at a sustainable pace and volume,” Dutt said.
Meanwhile industrialist in Kolkata reacted sharply and said that the RBI’s reluctance to cut key lending rates may lead to a further slowdown in the economy.
“Certain sectors can slow down because of this, as negative sentiment persists,” A. Mahendran, managing director, Godrej Consumer Products, said in Kolkata.
Kolkata-based Emami Group’s chief executive officer N.H. Bhansali said “the bank’s move is certainly a disappointment”.
The country’s second largest car maker, Hyundai Motor said it was expecting a rate cut, boosting demand in the automobile sector, which was going through a tough time. “We have been expecting a rate cut. Auto industry has been going through a rough weather. Sentiments are negative. But the apex bank did not go ahead with the rate cut considering high inflation,” said R. Sethuraman, vice president, Hyundai Motor India.