Cut interest rates to provide cheap credit

The survey has made a strong pitch to the Reserve Bank of India (RBI) for easing of interest rates to provide affordable and cheaper credit with a view to boosting investment and growth. HT reports.

The survey has made a strong pitch to the Reserve Bank of India (RBI) for easing of interest rates to provide affordable and cheaper credit with a view to boosting investment and growth.

The survey said that though inflation remained a cause for concern, the RBI's focus should be to reduce interest rates to aid growth.

Inflation would have to be contained by addressing supply-side factors, it said. "With a significant part of inflation getting generated because of poor supply responses, a further shift in the policy stance of the RBI, coupled with improving access to credit with moderation in its cost, would be desirable."

"Inflation is much more a supply-side phenomenon, therefore whatever measures required to improve investment climate and expand capacity must be taken and reducing interest rates would be one of them," economist Rajiv Kumar told HT.

Most advanced and emerging economies in the current year have eased interest rates, the report pointed out. However, it added that the positive effect of continuous policy easing by advanced and emerging economies could pose a higher risk to inflation expectations.

While headline inflation -measured by wholesale price index - remained muted in the current fiscal year and declined to 6.62% in January, the lowest in three years, the consumer price index has shown a rising trend in the last few months primarily on account of high food prices.