Expressing disappointment over the Reserve Bank of India's (RBI) decision to leave key policy rates unchanged, India Inc has said there is a need to revive domestic demand and encourage investment through lower cost of capital to crank up growth. Besides, Confederation of Indian Industry (CII) Director General Chandrajit Banerjee has expressed hopes that going forward the central bank would shift its policy stance to accommodative from neutral and effect a cut in interest rates to revive domestic demand, which would provide a boost to broad-based investment activity that has yet to take off in a big way.
Banerjee also observed that a reduction in interest rates would give the necessary signal that fiscal and monetary policies are working in tandem to give a boost to growth. Assocham President Sandeep Jajodia pointed out that while inflation weighed on the decision of the Monetary Policy Committee of the RBI, the growth concerns cannot be brushed aside either, as the cost of capital is still high in India. He also noted that India Inc continues to remain over-leveraged while consumer demand is still subdued.
RBI Governor Urjit Patel along with six-member Monetary Policy Committee (MPC) maintained status quo for the second time in a row during fifth-bi-monthly monetary policy of FY18. Policy repo rate under the liquidity adjustment facility (LAF) continues to stand at 6%, while reverse repo rate under the LAF remains at 5.75%, and the marginal standing facility (MSF) rate and the Bank Rate at 6.25%. However, RBI has raised the inflation forecast for the next two quarters from 4.2-4.6% to 4.3-4.7% on rising crude oil and vegetable prices.