ASSOCHAM urges RBI Governor to cut interest rates

Citing a five-year low inflation and deceleration in factory output, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has urged Reserve Bank of India (RBI) Governor Urjit Patel to reduce the policy interest rate by at least 25 basis points when the RBI Monetary Policy Committee meets on August 2 to review credit policy.

 In a letter to the RBI governor, the ASSOCHAM secretary general  DS Rawat said that the interest rate cut, which would be a big relief to different sectors of the economy, could be implemented keeping in view a long duration of consistency in the repo rates and lows in both consumer price index (CPI) and wholesale price index (WPI) inflation. 
 
The CPI in June reached an almost-five year low at 1.54 per cent, from 2.18 per cent in the previous quarter. The WPI also eased to 0.9 per cent from 2.17 per cent.

The easing of food inflation to minus 2.12 per cent from 0.31 per cent  and good monsoon forecasts creating a situation for further reduction in food inflation have strengthened the case for a rate-cut. For almost an year, the Current Account Deficit continues to be steady as well because of stable crude oil prices. 
 
"The deceleration in factory output growth could further bolster the case for a rate cut next month to boost Asia's third-largest economy, which grew 6.1 per cent in the January-March quarter - its weakest pace in more than two years," the chamber said.
 
The chamber also urged the RBI to come out with a special dispensation for loan recovery from the small and medium enterprises and mid-sized corporations.