RBI stance to hold key rates a prudent move: India Inc

New Delhi: India Inc cheered the Reserve Bank's stance to hold key interest rate on Thursday terming it a "prudent" move in the wake of headwinds emanating from global banking stress and said the move will improve business sentiments by containing the rise in borrowing costs.

Industry bodies cautioned that any further hike in the benchmark repo rate at this juncture would have affected India's economic growth even as domestic demand impulses remain healthy. Sanjiv Bajaj, President, CII said the industry body agrees with the central bank's observation that the lagged impact of the past rate hikes should be allowed to percolate into the system, and not stifle demand by further rate hikes. Though the domestic demand impulses remain healthy, headwinds from the global banking stress have gained pace, hence it was important for the central bank to remain cautious in its stance. This move by RBI will help bolster business sentiments by containing the rise in borrowing costs which have constricted the pricing power of firms, Bajaj added.

Subhrakant Panda, President, FICCI said, "The pause in policy repo rate by RBI is a welcome move given the evolving macro-economic and financial markets scenario. The renewed phase of turbulence that central banks are grappling with globally given developments in the banking sector, geopolitics and slowdown in growth & trade flows warranted a prudent response which RBI has delivered." Assocham Secretary General Deepak Sood termed the RBI's pause a "prudent stance in the wake of high level of volatility in the global financial markets and geopolitical events".

Murthy Nagarajan, Head- Fixed Income, Tata Asset Management, felt that RBI has indicated that it is only a pause in rates right now. "Real rates which is the difference between expected CPI inflation and repo rates now stands at 1.3 per cent positive. The bar is now high for RBI to hikes rates in the upcoming policy unless macro-economic conditions change dramatically. The ten-year G sec yield is expected to trade in the range of 7.10 per cent- 7.30 per cent and may move towards 7 per cent levels if CPI inflation moves towards 5 per cent," he said. Calibrated steps undertaken by RBI will help the growth and consumption at the critical juncture of global headwinds and slackening demand trajectory, said Saket Dalmia, President, PHD Chamber of Commerce and Industry.