‘Status Quo’ stance by RBI on repo rate draws mixed response
The RBI Monetary Policy Committee’s decision to keep the repo rate unchanged has drawn a mixed response from the industry
December 06, 2019
Monetary Policy Committee’s (MPC) decision to keep the repo rate unchanged
has drawn a mixed response from the industry. While FICCI expressed its disappointment at the RBI decision to not cut policy rates, the move was hailed by the Indian Banks’ Association (IBA).
‘RBI repo rate decision contrary to what we were expecting’
Commenting on the monetary policy announcement by RBI earlier today, Sandip Somany, president, FICCI said, “The RBI has left the repo rate unchanged. This is contrary to what FICCI was expecting given the weakening growth scenario in the economy. We note with concern that the transmission of the earlier policy rate cuts has not happened adequately, and are disappointed with the decision to not cut the repo rate as there is need for continued action on the policy rate front.”
‘Cut in repo rate was important for boosting sentiment’
“A reversal in the declining economic growth trajectory is clearly the need of the hour and all steps should be taken to bring about this change. A cut in the policy rate was also important for boosting the sentiment in the market and amongst investors, and FICCI was hoping for a bolder action on this front. In fact, we feel that a further cut of 75 to 100 basis points in the repo rate is required in a short period of time to strengthen growth in the economy,” the FICCI president added.
‘Govt and RBI need to initiate stronger measures’
“With the growth projection for the current year being revised down from 6.1 percent to 5 percent, both government and the central bank should initiate some stronger measures to break the logjam particularly in the stressed sectors of the economy. There has been some active consultation between industry and government, and we expect that between now and the next Union Budget some of the additional measures suggested by the industry will be implemented,” said Somany.
IBA Chairman says monetary policy works with a lag
While asserting that the RBI decision for a status quo though an unanticipated policy surprise is the most appropriate as monetary policy works with a lag, IBA Chairman Rajnish Kumar said, “The lowering of the GDP growth for FY20 and FY21 reflects continued growth conundrums and a slow recovery. On the development and regulatory front, the steps announced for the primary (urban) co-operative banks will facilitate increased public confidence in these institutions. RBI’s policy announcements have also given further push for the development of the secondary market for corporate loans by creation of SRB thereby matching the global best practices in this regard. Decision to allow OTC currency derivative transactions upto $10 million without evidence of underlying exposure will provide a fresh breath of life to this market giving it much required depth going forward.”