RBI should cut repo rate by 0.5%, CRR by 0.75%: CII
The Reserve Bank should immediately cut its policy rates by at least 0.5 percentage points to revive investments and rejuvenate industrial growth, industry body CII said today.india Updated: Oct 21, 2012 11:33 IST
The Reserve Bank should immediately cut its policy rates by at least 0.5 percentage points to revive investments and rejuvenate industrial growth, industry body CII said on Sunday.
Industrial and economic growth have been hit hard by high interest costs and flagging investments, it said.
The RBI is scheduled to unveil its second quarter review of the credit policy on October 30.
"RBI should bring down repo rate by 50 basis points immediately and another 50 bps subsequently during the course of the financial year," CII said in a statement.
It also asked to reduce Cash Reserve Ratio (CRR) by 0.75 percentage point from its current level of 4.5%.
CRR is the portion of deposits banks park with RBI.
"This would not only help revive business sentiment and enable companies to raise capital at affordable cost but would also ensure that liquidity in the economy remains adequate," CII Director General Chandrajit Banerjee said.
Industrial output during April-August was 0.4% down from 5.6% in the same period in 2011-12.
The chamber said the declining trajectory of inflation should spur the RBI to revisit its monetary policy stance.
"The actual impact of the fuel price hike on core inflation was less than anticipated. In this situation, it is very important to improve the investment sentiments by bringing down repo rate which with a lag feeds into the interest rate structure of the country," Banerjee said.
Further, it said the RBI should create a special dispensation in the NPA norms for specific debt laden sectors such as textiles in order to help indebted companies to undertake corporate debt restructuring to take advantage of the bottoming out of the business cycle.
It also asked the RBI to open a special window to supply dollars to oil companies for the initial period of six months to ring-fence the currency market.
"A direct dollar line to oil companies would help check volatility in currency markets and bring stability in trade," it added.
CII has also suggested the central bank to consider extending new banking licences to private sector players.