It is important for RBI to reduce interest rates as a proactive measure to avoid economic slowdown and to keep investor confidence in the economy intact. Reacting to the US Fed's emergency rate cut of 75-basis points (See: Fed announces unscheduled 75-basis point rate cut to 3.5 per cent), industry chambers in India have begun to expect an interest rate cut from the RBI.

Yesterday CII advocated a rate cut (See: Lower interest rates to boost economy: CII), followed by the Indian Merchant's Chamber president Niraj Bajaj, today.

Bajaj, said such a move would have a multiplier effect on economic growth and reducing interest rate would go a long way in boosting demand and investments. High interest rates have had detrimental effect particularly on exporters and SMEs, he added that the appreciating rupee had eroded exporters' margins throughout the past one year. 

The timing is just right for a downward revision of benchmark rates, given the consistent decline in headline inflation to below 4 per cent, which is much below the RBI's tolerance level of 5 per cent said Bajaj  
 
A softening of both deposit and lending rates would provide a boost to consumer spending, which would help to keep the macro-economic fundamentals of the Indian economy strong and thereby maintain the tempo of current growth.

It has been estimated that India would need investments exceeding 36 per cent of the GDP to achieve 9 per cent to 10 per cent GDP growth in the medium term, essential for raising per capita income and reducing income inequalities. 

He said after the US Fed's cut in interest rate to prevent the world's biggest economy from slipping into recession, the EU, too, was now considering an interest rate reduction.