Repo Rate Cut to Strengthen Demand and Economic Growth: PHD Chamber

While welcoming the Third Bi-monthly Monetary Policy Statement for 2017-18 by RBI, Mr. Gopal Jiwarajka, President, PHD Chamber of Commerce and Industry said that 25 basis points cut in repo rate is consistent with the current economic environment in the country as inflation is significantly low and good monsoon scenario is visible.

Monetary Policy Committee (MPC), RBI has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 6.25% to 6.0% with immediate effect. Consequently, the reverse repo rate under the LAF stands adjusted to 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate to 6.25%.

However, at this juncture the transmission of the policy rate cut by the banking sector in terms of reduced lending rates would be crucial to induce demand and industrial growth in the country, added Mr.  Jiwarajka.

The growth of IIP at 1.7% for the month of May 2017 and growth of Capital goods at around (-) 4% in May 2017 is a major cause of concern as it is indicative of subdued pace of investments in the economy, said Mr.  Jiwarajka.

Further, cost of credit to businesses is high in India as compared with many competitive economies, impacting competitiveness of businesses not only in the domestic market but also in the international markets, he said.

Therefore, we expect that Monetary Policy Committee of Reserve Bank of India to adopt aggressive move to consolidate repo rate at around 5.5% by March 2018 to push growth of industry and economy to the new normals, added Mr. Jiwarajka.

Cut in repo rate will not only reduce the costs of doing business but also enhance our exporters’ competitiveness in the international markets, he said.