Assocham wants RBI to cut policy rates by 100 bps

The Reserve Bank of India should reduce key interest rates by at least 100 basis points to spur economic activity, according to industry body Associated Chambers of Commerce and Industry.

Assocham representatives met the RBI Governor, Dr D Subbarao, on Tuesday to put forth their suggestions to reduce both the repo rate (the interest rate at which banks borrow funds from RBI) and the cash reserve ratio (the slice of deposits that banks park with the RBI) by 100 bps to support credit growth and investments.

“The market intervention by the RBI to support the rupee has sucked out liquidity,” the body said in a statement.

Mr Rajkumar Dhoot, President, Assocham, said, “The reduction in interest rates will increase the earnings of the industry.” In addition, the industry body said the RBI and the Government should not delay the New Bank Licensing policy for entry of more private sector banks. “The Governor said that the RBI will reply to our suggestions after the first quarter review of monetary policy 2012-13 on July 31,” Mr Dhoot added.

ECB

If a company demonstrates to the RBI that the repayment of the proposed ECB (external commercial borrowing) can be met out of its own forex earnings, the limit of 50 per cent of the annual export earnings should not be applicable, said Assocham.