The Short Names

CII WELCOMES RBI’S FIRST QUARTER MONETARY POLICY REVIEW

 

The RBI’s commitment to maintain a policy stance that will return the economy to a high growth path is welcome, said Mr. Venu Srinivasan, President, CII. Even though the RBI did not change policy rates in its first quarter review, it clearly stated that ensuring a flow of credit to the private sector at viable rates is one of its key objectives. CII understands that the RBI faces some difficult challenges in the current macroeconomic situation.

 

For one, the increase in the government’s borrowing programme has lead to a hardening of bond yields across maturities. The RBI needs to ensure that this does not lead to crowding out of private sector credit. As credit demand has remained subdued in the first half of 2009-10, it has been possible for the government to borrow large amounts from the market without pushing up interest rates. But as private sector credit demand picks up towards the latter half of the year, the RBI has to ensure that liquidity remains adequate.

 

Second, as the RBI has pointed out, inflationary expectations have not eased even as inflation has declined to negative territory. This is because inflation in essential commodities such as food remains high and prices of fuel and other commodities have hardened over the last few months. At the same time, the news on growth has been positive and growth projections have been moving up.

 

CII is of the view that while there may be spikes in some commodity prices, inflationary risks remain low, given that the global economic recovery is still uncertain. Monetary policy must remain accommodative in such an environment so as to ensure a revival in India’s growth path, said Mr. Srinivasan. CII would recommend a 25 bps reduction in the repo and reverse repo rates in the half yearly review scheduled in October.

 

NEW DELHI

28^th JULY 2009

 

Neelam Joshi

Media Desk

Confederation of Indian Industry

23, Institutional Area

Lodi Road

New Delhi – 110 003

Mobile: 9810882431

 

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