RBI mid-quarter Monetary Policy – Reactions

As expected, the Reserve Bank of India today held key interest rates unchanged despite calls from industry lobbies for easing money supply, despite a dip in inflation to about 9.3 percent.

The following are key reactions to RBI’s move.


The quarterly GDP figures point towards a poor health of the economy even while industrial slowdown has not bottomed out and sluggish private and government capital expenditure is hurting investment in industry and economy, the Confederation of Indian Industry said.

“In such a situation CII is looking at the RBI for interventions which would improve the cost and availability of credit to industry. Besides, inflation is on a downward trajectory and core inflation, which reflects demand side pressures on the economy, has dipped to more than three year low. Admittedly, global growth is still fragile and the recent slide of the rupee has revived fears of inflation. But, inflation in India is a supply side problem and expectation of a normal monsoon should keep inflationary expectations under check. CII hopes that the RBI would not wait for the next quarterly review but intervene sooner if the economic condition warrants a mid-course correction.”

India Infoline

“Although headline and core WPI inflation continues to decline sharply and are at multi-year lows, the RBI had no choice but to maintain status quo on the Repo rate front, on account of the 9% depreciation in the Rupee since 1st of May,” said Amar Ambani, Head of Research.

“The US Dollar has been strengthening, particularly against countries with high Current Account Deficits (CAD), on improving US economic data and fear of premature withdrawal of the bond buying programme by the Federal Reserve. India has the 2nd largest CAD in the world in absolute terms and faces the risk of further depreciation of its currency.

“The RBI would like to wait to see the impact of the depreciation on inflation and also action from the government to reign in the CAD. In any case, significant monetary transmission of the 75 basis points cuts in 2013 is yet to take place. The CRR has been left unchanged and the RBI’s focus will be to reduce the liquidity deficit, which stands at over Rs1 trillion.

“While it is not clear if the Governor will cut rates in the next policy review, we expect an incremental 50-75 basis points Repo cut till March 2014. This is based on the likelihood of subdued global commodity prices, normal monsoons, deceleration in consumption momentum and some stability in the INR in the coming months”.

Angel Broking

Dinesh Thakkar (CMD-Angel Broking) on Mid-quarter Monitory Policy Review:

“The Reserve Bank has maintained status quo on policy rates, along expected lines and I believe that its stance is appropriate given that the rupee depreciation is likely to offset the positive impact of soft global commodity prices and potentially stoke imported inflation,” said Dinesh Thakkar, CMD of Angel Broking.

“The external sector also remains vulnerable as the trade deficit has widened sharply in April and May 2013. But going ahead, I believe that the onset of a normal monsoon, decent rabi production in FY2013 and expectations of moderate MSP hikes are likely to support moderation in food inflation and give the RBI room to cut the repo by an additional 50 basis points in FY2014.”


“RBI has done right by not changing the rates at this point in time. On the global front RBI would like to see how Fed reacts to the growth that is beginning to emerge in the US.

While the IIP numbers would remain sluggish not much can happen by mere reduction in the repo rates as banks would not be able to pass on the benefit to the borrower unless the borrowing rates of banks come down.

“While the WPI has come down in May and KASSA expects it to remain down the food inflation is still sticky and if the monsoons don’t come out the way they should food inflation will continue to remain high.

With the depreciation in the rupee the fuel inflation and thus the overall would also move up CAD is a major issue and would continue to remain so for the coming few weeks till we have some clarity on the global situation. Should the rupee remain volatile and Fed starts to pull out of QE3, we would see rupee depreciating further thereby putting more pressure on inflation and thus RBI may not cut rates in the next meeting.”

Apparel Exports Promotion Council

“We are disappointed with RBI’s Stand,” said A Sakthivel, Chairman of AEPC.

“Apparel SMEs were expecting a rate cut of 0.5% which is mainly required to remain competitive in the international market due to higher interest rate. The median lending rates on pre-shipment Rupee export credit upto 180 days ranged between 10.55 – 13% in end 2012 as compared to 10.75 – 12.88% in March, 2012. These remain high in same range,” he said.

“The Tirupur district banks had fixed a credit target of Rs.3,661 crore, whereas the credit availed by the units were only Rs.2,742 crore which is 75% of the target. Out of Rs.70000 crores of garment exports, approx. Rs.52000 crores exports is from SME sector (75%). The Industry is not able to take credit at such high rates and losing its competitiveness in the world market,” he added.

At the beginning of the 12th Plan period, the outstanding credit gap for the MSME sector is estimated at 62%, which is estimated to reduce to 43% in March, 2017 with the assumption of minimum 20% year-on-year credit growth to MSME sector, APEC added.

“Thus rate cut is necessary to achieve this and reduce gap. The figures truly reveal that the units are reluctant to avail the credit due to higher interest rate apart from market conditions.

“The garment exporting units are expected to invest in product development and also replace the old machineries to remain productive and therefore, the credit needs are required to be replenished at a flat rate of interest,” it added.


ASSOCHAM received a quick response from a large number of its members who have expressed their complete disappointment with the no-cut credit policy review by the Reserve Bank of India today.

“If we read the RBI policy document, we get a clear signal that it is being done under large economies. We cannot be going just by a sole consideration of rupee depreciation and its possible impact on inflation. Why ignore other factors like arrival of good Monsoon which will surely boost food supply to have a dampening impact on the price situation,” the industry association’s president, Rajkumar N Dhoot, said.

WPI inflation is well within the comfort zone but still the RBI seems to have been influenced by CPI inflation of food items, ASSOCHAM said.

“The issue on food prices is not supply constraints per se. It is a bad distribution. After all our granaries are full of cereals and still the inflation under this head is about 20 per cent. This is a clear case of food mismanagement and not supplies constraint or shortages. Can high interest rates resolve the problem of food distribution and consequent high prices?” it asked.

Dhoot said, instead of taking steps which are full of conviction, it is a pity that we have now look more towards the moves of the Federal Reserve with regard to so -called quantitative easing and its impact on the currency pricing. “Should our economy, the banking system and the entire financial services be solely dependent on action of a few large economies? That is the question the RBI and the government must mull over,” the asked ASSOCHAM President.