Indian industry hails bank's monetary policy
Tuesday, 29 October 2002, 08:00 Hrs
NEW DELHI: Indian industry Tuesday cheered the Reserve Bank of India's (RBI) decision to reduce key interest rates to stimulate investments in a slowing economy. Industry lobby groups said the lowering of interest rates by the country's central bank would give a push to the nascent industrial recovery and boost the overall economic growth in the current fiscal year. "The busy season credit policy reiterates RBI's commitment to facilitate a softer interest rate regime," said Confederation of Indian Industry (CII) president Ashok Soota. The RBI lowered the bank rate -- rate at which it lends to other commercial banks -- by 0.25 percent point from 6.50 percent with effect from the close of business on Tuesday. It also cut Cash Reserve Ratio (CRR) -- the percentage of funds banks must deposit with it -- from 5.0 percent to 4.75 percent effective from the fortnight beginning November 16. Indian industry has been long clamoring for a cut in benchmark bank rate. Analysts think the cut will help revive demand in a sluggish economy. They say the RBI move sends a strong signal to commercial bankers to bring down prime lending rates, the interest rate at which they lend money to their large customers. CII said the RBI was on track to eventually reduce CRR from the present 4.75 percent to the statutory minimum of three percent. "While it again reflects RBI's welcome bias in favor of a soft interest rate regime, it is questionable whether commercial banks will, indeed, reduce their lending rates to reflect this bank rate cut," said Soota. The Federation of Indian Chambers of Commerce and Industry (FICCI), however, said the quarter of a percentage point reduction in benchmark interest rates falls short of industry expectations. "Industry was hoping a one-percentage point reduction in view of the prevailing low inflation rate and comfortable foreign exchange reserves. "Industry only hopes this token cut would translate into a meaningful cut in the prime lending rate, which indeed is important at this juncture to give further push to the industrial growth." Welcoming the policy, R.K. Somany, president of The Associated Chambers of Commerce and Industry of India (Assocham), said in spite of the existing low interest rates, the real interest rates in the economy were high and the credit off-take was low. "Though it is a move in the right direction, the present reduction both in bank rate and the CRR by 0.25 percentage points alone will not have the desired effect," he added. Somany said the moderate upturn in industrial production in the last quarter and the buoyancy in exports has been reflected in increased credit flow to industries.