Mixed reaction from India Inc

There was a mixed reaction from India Inc to the 0.5 percentage point cut in the cash reserve ratio (CRR) announced by the Reserve Bank of India (RBI), reports Gaurav Choudhury.

There was a mixed reaction from India Inc to the 0.5 percentage point cut in the cash reserve ratio (CRR) announced by the Reserve Bank of India (RBI) on Tuesday.

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"While RBI has maintained the Bank Rate and Repo Rate at the earlier levels, the increase in CRR by 50 basis points will impound liquidity thus reducing lendable resources of the banks," industry chamber Federation of Indian Chambers of Commerce and Industry (FICCI) said in a release.

Federation of Indian Export Organisations (FIEO) President Ganesh Kumar Gupta expressed disappointment that no significant measures had been taken to reduce the cost of credit to the SME export sector in view of the appreciating rupee impacting export growth.

"An increase in CRR by 50 basis points will restrict credit for the SME sector and could also create a liquidity crunch adversely affecting trade and industry," he said.

The Confederation of Indian Industry (CII) felt the RBI’s review of monetary policy was on expected lines. However, keeping in mind the international trends in interest rates, and particularly the indications coming in from the US, RBI could have considered an interest rate (Repo Rate) cut to go along with the CRR hike of 50 basis points, it said.

PHDCCI President Sanjay Bhatia said the increase in CRR should have been avoided. “CRR is already high at 7 per cent. Since the credit offtake is low, the increase in CRR could further impact the prime lending rate. The increase in CRR may not have that desired impact on inflation”, he said.