RBI Monetary Policy draws mixed reaction from industry

New Delhi, Apr 29 (UNI) The RBI Annual Policy for 2008-09 has drawn mixed reactions from the industry bodies with some expressing concern over the CRR hike, while others felt it would help tame inflation PHD Chamber said the further increase in CRR by 0.25 per cent to make it 8.25 per cent would adversely affect availability of credit to all sectors of the economy.

''It would reduce the profit margins of the scheduled commercial banks and compel them to increase interest rates. This is bound to temper demand for loans and adversely impact investments as well as consumption,'' the chamber said.

According to the PHD Chamber, the Monetary Policy has failed to adequately focus on pushing investments for growth and improving the supply side.

''It is feared that the RBI's measures to tackle inflation by sucking liquidity from banking system might trip economic expansion and hamper the realisation of projected GDP growth of 8.5 per cent for 2008-09. This would be further impacted if we fail to get normal monsoon,'' it said.

However, industry body CII is confident that the CRR hike to suck out liquidity from the system will help the RBI's objective bring down inflation to around 5-5.5 per cent without increasing interest rates at this point in time.

CII welcomed the RBI's announcement on introduction of repo in corporate bonds, as this move will go a long way in developing the corporate bond market.

The industry body appreciated the RBI's move to allow the domestic companies to invest overseas in energy and natural resources, as this will help India secure its future energy needs.

The hike in the cash reserve ratio may not be able to bring the desired effect on inflation. However, the resultant increase in interest rates would further underpin the slowdown in the industrial growth, said Assocham President Venugopal N Dhoot.

''The tightening in money situation may lead to fall in business and consumer confidence. As the current inflation is due to supply-side constraints and global rise in commodity prices, hike in CRR is less likely to curtail the inflation rate,'' Mr Dhoot said.

The chamber has appreciated the increase in the limit for home loans under 50 per cent risk weight, as it would provide marginal relief to the slowing housing sector.

FICCI said despite severe inflationary pressure on the economy, the RBI has refrained from any rate hikes which is indeed a welcome move.

The increase in limit of bank loans to individuals for housing loans with lower risk weight from Rs 20 lakh to Rs 30 lakh is heartening news, FICCI President Rajeev Chandrasekhar said.

The industry body also welcomed the RBI's move to relax the asset classification norms for infrastructure projects. This will help boost the bank financing for the Infrastructure development.

The RBI's decision to keep the bank rate, repo rate and the reverse repo rate unchanged was lauded from all corners.

UNI MP SBA KP1822