The Hindu : Industry hails cut in Bank Rate

Online edition of India's National Newspaper
Wednesday, Apr 30, 2003

Business

Business

Industry hails cut in Bank Rate

By Our Special Correspondent

NEW DELHI APRIL 29. Industry today welcomed the Reserve Bank of India's reduction of interest rates in the 2003-04 credit policy in continuation with soft interest rate regime policy and looked forward to further reduction in bank lending rates.

According to the Federation of Indian Chambers of Commerce and Industry President, A. C. Muthiah, the reduction in Bank Rate and cash reserve ratio (CRR) by 0.25 percentage points each is expected to translate in further reduction in lending rates of banks which had "remained sticky'' despite regular reduction in Bank Rates.

In a statement issued here today, he said the RBI's expectation on inflation of 5 to 5.5 per cent should keep enough buoyancy in the economy. "We believe this to be an optimal level of inflation, which will give industry enough incentive to produce without hurting the consumer.''

The new CII President Anand Mahindra also welcomed the cut in the Bank Rate and CRR which he described as being in line with industry's expectations and an important step towards aligning Indian interest rates with international rates. It would release as much as Rs. 3,300 crores of additional liquidity in the banking system, he said. On the impact of the cut in the Bank Rate on lending rates by banks, he said due to the asset-liability mismatch caused by high deposit rates, it was unlikely that lending rates would be significantly affected. However, he felt there was a need to move away from the administered saving rate regime.

In a mixed reaction to the policy, the Associated Chambers of Commerce and Industry welcomed the measures to improve the credit delivery mechanism and continuation of soft interest rate regime, but cautioned that it might not

generate the desired growth. The Assocham President, R. K. Somany, said while the RBI had given special attention to the agricultural sector, micro-financing and boosting infrastructure financing, the policy is unlikely to unshackle the economy and generate growth.

He noted that the efficacy of monetary policy has minimised and therefore the RBI should look at ways to reflate the economy rather than trying to control the economic activity through monetary policy tools alone.

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