RBI's monetary policy announced yesterday, which left key rates unchanged has left the industry disappointed. Though most polls said that a rate cut was not expected, economist, bankers and industry policies have expressed their stand against the conservative wait and watch policy adopted by the RBI.
The central bank left its repo rate, reverse repo rate and the cash reserve ratio unchanged on Tuesday, RBI assured market participants that it will endeavour to maintain the overnight money market rates within limits.
''The Reserve Bank will continue to pursue this stance of ensuring ample liquidity in the market and maintaining the overnight money market rates within the LAF corridor,'' it said in a release, adding, ''In order to do so, the Reserve Bank will, as in the past, employ both conventional and unconventional measures.''
The demand for credit from the banking sector has increased as other sources of funds have shrunk, the release noted.
Industry expresses disappointment
Welcoming the extension of bank's refinancing facilities to mutual funds, non-finance banking and housing companies by relaxing maintenance of SLR upto 1.5 per cent, ASSOCHAM said that it was expecting that the premier bank would have also brought down cash reserve ratio, repo rate and reverse repo rate by at least 100 basis points, which did not happen.
ASSOCHAM president, Sajjan Jindal said in a statement that the need of hour is that Indian Inc. needed money at relaxed interest rates which could have been possible provided RBI had not maintained status quo in its cash reserve ratio, reverse repo rate and repo rate.
Jindal, however, added that the ASSOCHAM concurs with RBI's assessment that India's GDP would not exceed 7 per cent in current fiscal in view of slowdown and also agreed with the premier bank that the inflation will fall to 3 per cent by March 2009 since prices of essential commodities, crude oil and metals have started coming down heavily.
Tushar Poddar, economist, Goldman Sachs, said the central bank should adopt "an aggressive stand". He said that RBI had missed an opportunity to reduce rates further.
Abheek Barua, chief economist of HDFC Bank Ltd said that the bank expects a cut of at least 50 basis points by March 2009.
FICCI has expressed disappointment that the central bank, in its credit policy announcement today, has held back its activism in further pruning the repo and reverse repo rates at a time when, by its own admission, inflation was expected to moderate to 3 per cent by March this year. This was clearly a window of opportunity, as it would have served to further stimulate the confidence building measures initiated by the government and the RBI in the recent past, the chamber said in a statement.
As regards CRR, FICCI had hoped that ratio would be reduced by at least 100 basis points to infuse more liquidity into the system thereby pushing the banks to be liberal in extending credit. It would also have enabled businesses to bring viable projects on the table.
Important measures taken by RBI since September 2008
- Has reduced the CRR from 9 per cent to 5 per cent that is an adjustment of 400 basis points
- Adjusted the policy rates most importantly both on the repo and on the reverse repo rate, which as come down from 9 per cent to 5.5 per cent in adjustment of 350 basis points
- The reverse repo rate from 6 per cent to 4 per cent and an adjustment of 200 basis points
- Opened a term repo window of 1.5 per cent of NDTL to enable banks to draw from the window and on line to NBFC's and housing finance companies and mutual funds.
- Opened another special window under section 17-3B of the RBI act to make available to banks without any collateral and that is 1 per cent of NDTL in the amount of roughly Rs40,000 crore
- An upward adjustment of interest rates on FCNR and NRER accounts
- Allowed NBFCs and housing finance companies to access foreign borrowing
- Allowed corporates to buy back FCCB's prematurely
- Instituted a rupee-dollar arrangement for Indian banks with substantial foreign presence.