labels: Confederation of Indian Industry
Lower interest rates to boost economy: CII news
23 January 2008

Mumbai: The Confederation of Indian Industry (CII) has sought a rate cut by the Reserve Bank of India (RBI) to strengthen domestic economic fundamentals against the backdrop of a 75 basis point cut in benchmark US interest rate by the Federal Reserve.

"With inflation under control and hovering around 3.0 per cent, it is the right time for the RBI to cut the repo and the reverse repo rates by 25 to 50 basis points," CII president Sunil Bharti Mittal said in a statement.

The two rates currently stand at 7.75 per cent and 6 per cent, respectively.

The suggestion followed major losses on the Indian stock market, which have fallen for seven consecutive sessions. The market fell nearly 13 per cent yesterday before ending the day down 5 per cent. The market staged a major recovery with the BSE Sensex gaining 864 points at close of trade today.

The Reserve Bank is due to review its credit policy on January 29.

The RBI had raised interest rate five times since June 2006, which has started impacting consumer goods sales and production of automobiles.

Mittal said a reduction in interest rates would go a long way in boosting consumption and production. India needs to keep investment rates in excess of 36 per cent of gross domestic product to achieve 9.0-10 per cent economic growth, he added.

The Indian economy has grown at an average 8.6 per cent in the past four years and is expected to grow at a similar pace in the current fiscal.

Industry has for long been lobbying for lower interest rates, warning that the decline in industrial production in the recent months could trigger a manufacturing slowdown, especially in areas like consumer durables and a consequent fall in economic growth.

Banks, meanwhile, are betting on a rate cut by the RBI following the 75-basis-point Fed rate cut.

Other central banks are also taking stock of the US rate cut. Bank of Canada was quick to react, reducing interest rates by 25 basis points to 4 per cent US. Bank of Japan, however, said it was not lowering interest rates for now.

Some industry insiders expect RBI to step out of schedule and announce a rate cut before the monetary policy review on January 29.

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Lower interest rates to boost economy: CII