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With the Reserve Bank of India (RBI) set to review its monetary policy on Monday, industry body, the CII, has advocated a reduction in interest rates as warranted by the slowdown in industrial growth.
Putting the blame of inflationary pressures on rupee depreciation, the Confederation of Indian Industry (CII) said as a result India had not been able to take advantage of the slide in global commodity prices. “With foreign exchange reserves in excess of $280 billion, the RBI should continue to intervene in the currency market,” it said.
“India has entered a vicious cycle in which low growth is affecting investor confidence and leading to capital outflows and currency depreciation. This is adding to inflationary pressure forcing the RBI to hold on to higher interest rates than is appropriate for the economy,” the CII said.
The chamber reiterated the need to reduce subsidies to bring down fiscal deficit that is indirectly stoking inflation, along with encouraging investment in supply chain infrastructure.
The chamber further pointed to money supply growth tapering off in India.
“Compared to the RBI target of 15 per cent, money supply grew at only 13 per cent in 2011-12. The RBI needs to inject liquidity by cutting the cash reserve ratio and stepping up its open market operations,” it said in a release.
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