Ficci, CII tell RBI to lower rate of interest

Country’s two leading industry chambers — CII and Ficci — on Sunday separately demanded that the Reserve Bank of India (RBI) should reduce interest rates to sustain nine per cent economic growth. In its recommendations for the mid-term review of monetary policy by the RBI, CII expressed concern over the high interest rate affecting investments and growth.

The chambers said that Reserve Bank of India should recognise the need to reduce interest rates, which is pivotal to sustain nine per cent plus gross domestic product growth. It would also reduce the operating costs of exporting small and medium entreprises, who have been facing a decline in profit margins due to the appreciating rupee, said CII. The Reserve Bank of India will review the monetary policy on October 30. It had introduced tight monetary measures to control inflation and liquidity conditions in the economy.

The Reserve Bank of India has raised interest rates five times since mid-2006, most recently in March. At a July review, it held rates steady but raised banks’ reserve requirements to mop up funds that could fuel inflation. In the July 2007 review, the Reserve Bank of India kept the reverse repo rate unchanged at 6.0 per cent. It also kept the repo rate steady at 7.75 per cent but raised the cash reserve ratio by 50 basis points to seven per cent.

"With inflation at less than the lower limit of RBI’s tolerance levels of four to 4.5 per cent in the medium term and given the strong macro economic conditions, it is time to review the tight monetary policy regime," said CII. "Inflation is under control and has declined to 3.23 per cent for the week ending 15 September. However, bank credit has declined from a high of about 33 per cent in June 2006 to about 23 per cent in August 2007," said the chamber.

Ficci also urged the Reserve Bank of India to unveil a softer interest rate regime to spur credit growth. The chamber’s review of the credit needs of some important sectors revealed that agriculture, food processing and home loans were some of the areas which required special attention of the regulator. "Most of respondents to a Ficci survey felt that the Reserve Bank of India’s move to make housing loans expensive across the board was not justified, especially for residential purposes. Most of the respondent felt that the Reserve Bank of India should have made commercial loans stringent, instead the genuine home loan applicants have been hit badly," said Ficci.