Inflation, geo-political situation to weigh on RBI credit policy
Updated: Aug 04, 2014 03:17:19pm
New Delhi, Aug 4 (KNN) Ahead of the Reserve Bank’s ensuing credit policy review, corporate leaders expect small relief in the lending rates as inflationary expectations are still likely to weigh on the mind of the central bank in the wake of deficient rainfall and troubled geo-political situation posing risks of the oil prices again shooting up.
“As many as 73 per cent of the corporate leaders comprising CEOs, CFOs and senior functionaries said the RBI would not be ambitious enough to go in for a big cut in the benchmark interest rates, however much the business chambers want it,” an ASSOCHAM pre-credit policy survey has noted.
Corporate India feels that Finance Minister Arun Jaitley’s assertion that the interest rates would head southward seems clearly contingent upon a decisive drop in inflation, which in turn, is a function of agriculture output, particularly the food prices.
In a way, the entire interest rate paradigm would revolve around inflation. However, the positive side is that some of the concerns and outcry witnessed two-three weeks ago on prices of onion and other vegetables seems to be less vociferous which may give some elbow room to the RBI to at least announce small cut in the interest rates.
“Interest rates are not the only factor affecting the industrial growth and other spokes of the economic activity. But they play a key role in generating consumer confidence and reducing the cost of funds for the industry, which is highly leveraged in some segments like real estate, telecom, aviation, energy, infrastructure etc,” said ASSOCHAM, days ahead of the RBI credit policy review tomorrow.
As many as 57 per cent of the 181 corporate leaders polled in the last week of July, said they expect that the RBI policy will place a considerable weightage on the geo-political situation in Iraq, Syria, Ukraine and its impact on the global energy prices.
“Though some downward trend has been seen in prices of crude oil, the respite may prove to be temporary,” the survey noted.
On the issue of smart recovery noticed in the industrial production in May and handsome growth witnessed in the infrastructure sector for June, the poll respondents said the trend would only increase demand for non-food credit. “In a way that may exert pressure on liquidity and the banks may be forced to woo depositors, especially when the investors are seeing alternate channels of parking funds again- in the stock market and stable bullion.”
ASSOCHAM said it is not always fair to depend too much on the RBI alone to find answer to inflation which has to be tackled by improving domestic supply of goods and services. The Centre and the States have a crucial role, while vigil must be kept on essential prices by all the line ministries as well.
“We depend too much on the RBI for monetary solutions and the finance ministry for the rest while the line ministries must also chip in. For instance, food and consumer affairs ministry has a vital role. So is the role of the Agriculture, Power, Coal, to keep an eye on prices even though the market is deregulated and prices are function of demand and supply,” said ASSOCHAM. (KNN/ES)
“As many as 73 per cent of the corporate leaders comprising CEOs, CFOs and senior functionaries said the RBI would not be ambitious enough to go in for a big cut in the benchmark interest rates, however much the business chambers want it,” an ASSOCHAM pre-credit policy survey has noted.
Corporate India feels that Finance Minister Arun Jaitley’s assertion that the interest rates would head southward seems clearly contingent upon a decisive drop in inflation, which in turn, is a function of agriculture output, particularly the food prices.
In a way, the entire interest rate paradigm would revolve around inflation. However, the positive side is that some of the concerns and outcry witnessed two-three weeks ago on prices of onion and other vegetables seems to be less vociferous which may give some elbow room to the RBI to at least announce small cut in the interest rates.
“Interest rates are not the only factor affecting the industrial growth and other spokes of the economic activity. But they play a key role in generating consumer confidence and reducing the cost of funds for the industry, which is highly leveraged in some segments like real estate, telecom, aviation, energy, infrastructure etc,” said ASSOCHAM, days ahead of the RBI credit policy review tomorrow.
As many as 57 per cent of the 181 corporate leaders polled in the last week of July, said they expect that the RBI policy will place a considerable weightage on the geo-political situation in Iraq, Syria, Ukraine and its impact on the global energy prices.
“Though some downward trend has been seen in prices of crude oil, the respite may prove to be temporary,” the survey noted.
On the issue of smart recovery noticed in the industrial production in May and handsome growth witnessed in the infrastructure sector for June, the poll respondents said the trend would only increase demand for non-food credit. “In a way that may exert pressure on liquidity and the banks may be forced to woo depositors, especially when the investors are seeing alternate channels of parking funds again- in the stock market and stable bullion.”
ASSOCHAM said it is not always fair to depend too much on the RBI alone to find answer to inflation which has to be tackled by improving domestic supply of goods and services. The Centre and the States have a crucial role, while vigil must be kept on essential prices by all the line ministries as well.
“We depend too much on the RBI for monetary solutions and the finance ministry for the rest while the line ministries must also chip in. For instance, food and consumer affairs ministry has a vital role. So is the role of the Agriculture, Power, Coal, to keep an eye on prices even though the market is deregulated and prices are function of demand and supply,” said ASSOCHAM. (KNN/ES)
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