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India Inc wants interest rate cut to spur economy

The Confederation of Indian Industry says, "With inflation under control and hovering around three percent, it is the right time for RBI to cut repurchase and reverse repo rates."

business Updated: Jan 23, 2008 11:42 IST

With the US Federal Reserve announcing an interest rate cut of 75 basis points, Indian industry has demanded similar measures from its central bank with the hope it would arrest a possible industrial slowdown.

"With inflation under control and hovering around three percent, it is the right time for RBI (Reserve Bank of India) to cut repurchase (repo) and reverse repo rates," the Confederation of Indian Industry said in a statement on Wednesday.

The two rates are currently notified at 7.75 per cent and 6 per cent respectively, and the industry has demanded a cut of 25-50 basis points to cover the relative competitive disadvantage India is currently in on macro economic fundamentals.

"This move would strengthen the economic fundamentals and also boost investors' confidence," CII President and chairman of the Bharti group Sunil Bharti Mittal said in the statement.

"Reducing interest rates would go a long way in boosting demand and investments. It would also reduce operating costs of exporting small and medium enterprises, that have been facing decline in profit margins due to an appreciating rupee."

The demand also came in the backdrop of the crash in the Indian stock markets in recent days, which eroded billions of dollars in terms of valuations and led a key index to crash over 15 percent in just a few trading sessions.

Industry lobbies warned that the decline in industrial production in the recent months could trigger a manufacturing slowdown, especially in areas like consumer durables that has registered a decline in production.

Stung by fears of a possible recession, The US Federal Reserve had delivered a surprise interest rate cut of 75 basis points early Wednesday, which shored up market confidence across the globe, including India.