Monday, 2 June 2014

Modi Govt to have distinct mark on RBI credit policy review: Assocham

A small, though symbolic cut in interest rates of say, 25 basis points, looks on cards

The credit policy review on June 3 by the Reserve Bank of India will likely to have a distinct mark of the Modi government which has vowed to revive India’s economic growth even as the central bank will not let loose its eyes off the inflation, an ASSOCHAM poll of economists and CEOs noted.

A small, though symbolic cut in interest rates of say, 25 basis points, looks on cards, reveals the associated chamber of commerce and industry of India (ASSOCHAM) survey before the RBI credit policy.

As many as 76 per cent of the respondents in the 125-sized sample survey of the CEOs and economists said the RBI Governor is walking a tight rope as he knows the mind of the new Government which has been projected as pro-growth. On the other hand, he would have also been sounded by the new establishment about the people’s expectations from the new government to hold the price line, especially of the essential commodities.

Significantly, an overwhelming majority of the respondents felt that the RBI Governor’s own expectations from the new Government to reduce inflation by an effective market intervention and better coordination with the states, would have improved , given the strong messages of governance and performance to the ministers by the Prime Minister Mr Narendra Modi.

“Governor’s job would become much easier as he along with others can see much higher level of commitment to reduce the inflation, both at the WPI and retail level,” said ASSOCHAM President Mr Rana Kapoor.

The economic growth has remained sub five per cent for the past two years- the lowest annual expansion in 25 years while the stubbornly high inflation had forced the RBI to hike interest rates three times since he took office in September.

While the RBI is an autonomous central bank and the monetary policy is its sole prerogative, it is expected by a large number of corporate leaders and economists that the central bank chief would show much more pragmatism after his interactions with the new Finance Minister Mr Arun Jaitley who has shown it clearly that the NDA Government is pro-reforms.

“Plus the time –bound approach being followed by the new ministers at the instance of the Prime Minister will have inflation bursting as a top agenda item. Things are bound to get better even though there are hiccups on account of doubts on Monsoon. The good thing is that the country has enough stocks of food grains and the government only needs to manage stocks in its godowns well,” the ASSOCHAM paper said.

Low level of WPI inflation of a number of items like wheat, pulses, vegetables, oilseeds etc would give an extra room to the RBI to be accommodative.

The WPI inflation of food products under the manufactured items is under two per cent while several other items like sugar, edible oils and cement and lime have shown negative trend. Whatever items still show big price rise is certainly not a function of interest rates enabling the RBI to take a bold call. 
 

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