New Delhi: India Inc on Wednesday welcomed the “neutral” stance taken by the Reserve Bank of India (RBI) on a future rate hike trajectory, along with its reform measures for the realty, bond and banking sectors.
The positive feedback came even as the RBI raised its key interest rate for the first time since January 2015. It hiked the repo rate by 25 basis points (bps) to 6.25 per cent.
Commenting on the monetary policy statement, FICCI President Rashesh Shah said: “Today’s 25 basis points rise in repo rate by RBI is based on the ground realities and it indicates the positive sentiments in the economy.”
“Recovery in Indian economy that has come on the back of structural reforms like GST, Bankruptcy Code and RERA is firming up, and investments have started to see an uptick; RBI stance would boost the animal spirits and confidence of businesses.”
Besides, Shah said the improvement in growth seen lately needs to be supported to ensure “a firm turnaround of economy with capability of sustained high growth”.
“The manageable inflation situation and optimism in the economy is set to continue going ahead and the GDP growth rate in the current financial year would be around 7.5 per cent,” he added.
Confederation of Indian Industry (CII) President Rakesh Bharti Mittal while noting the increase in interest rate said that “the forecast of monsoon is very healthy and as it pans out, the little pressure that is there on food prices would ease and that should encourage RBI to revert to their benign stance on interest rates”.
In contrast, another major industry chamber — Assocham — said the RBI’s decision to hike repo rate has disappointed borrowers.
“The RBI policy document highlights the macro risks to the economy, including uncertainty on the crude oil front and the impact of the revision in the MSP for farm products, pressure for which would only increase in the election year,” Assocham Director General D.S. Rawat said.
“In fact, while the borrowers would feel disappointed, the RBI can’t be faulted as its basic mandate as given by Parliament is to keep inflation under control.”
According to ICICI Bank MD and CEO Chanda Kochhar, the hike in policy rate has reaffirmed RBI’s credibility as a vigilant central bank, especially against the backdrop of heightened global uncertainties.
“Such timely action will ensure that inflation expectations remain anchored, thereby aiding financial stability,” Kochhar said.
“Moreover, convergence in definition of the priority sector limit for housing loans with that of the government’s affordable housing scheme will ensure that this segment receives a fillip.”
Another top banker, SBI Chairman Rajnish Kumar said: “The RBI decision to raise repo rate by 25 bps is a pre-emptive and welcome move. Simultaneously, the decision to keep the stance in neutral mode indicates RBI’s willingness to be flexible and accommodative.”
“On the development front, the bouquet of measures are positive. In particular, the increase in FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) will provide more liquidity to banks and moderate short end interest rates,” Kumar said.
Other measures like increase in threshold limits for affordable housing, encouraging continued formalization of MSME sector are in the right direction, he added.
Indian Overseas Bank’s MD and CEO R. Subramaniakumar said: “The policy with neutral stance and the narratives are towards strengthening the fundamentals, especially the inflation.”
Economic revival on a sound footing and increased capacity utilisation are reassuring statements, which will spruce up investments, Subramaniakumar said.
“Recognising the MSME sector strain and extending the relief of 180 days for asset classification is a very positive and forward-looking step. Banks may have some relief as well,” he said