Apex industry body ASSOCHAM has advocated reduction in repo rate by 25 basis points (bps) in its bi-monthly monetary policy review scheduled for tomorrow owing to a prevailing better macro-economic situation.
“Factors like modest rise in minimum support price (MSP) for various crops together with benign global commodity prices and others are likely to result in moderating Consumer Price Index (CPI) at 5.2-5.4 percent in second half thereby undershooting the apex bank’s earlier projection of six per cent in January 2016,” said ASSOCHAM general secretary D.S. Rawat in a communication addressed to Reserve Bank of India (RBI) Governor Raghuram Rajan.
“As such a shift in the monetary policy stance by the RBI towards a softer interest rate regime by delivering a repo rate cut of 25 bps would help spur investment, consumption demand and overall growth,” said Rawat.
It may be noted that in the second bi-monthly policy review (June 2015), the RBI had revised its forecast for CPI inflation upward to six percent by January 2016 from 5.8 percent, on account of risks related to the forecast of a weak monsoon, rising crude oil prices and the impact of volatility in the external environment on inflation.
At the same time, the central bank had lowered its forecast for output growth for 2015-16 to 7.6 percent from 7.8 percent.
Given the weak investment scenario and the need to ease supply constraints over the medium term, the RBI chose to ‘front-load’ a rate cut, reducing the Repo rate by 25 basis points (bps) to 7.25 percent.