Website of Indian Chamber of Commerce and Industry Coimbatore

RBI’s Second Quarter Review of Monetary Policy 2011-2012

[ Date : 2011 Oct 27 ]

The Reserve Bank of India (RBI) has continued its policy of Monetary tightening in its latest announcement of Second Quarter Review of Monetary Policy 2011-2012. The Rate hike cycle has almost touched the peak.

The repo rate has been hiked by 25 basis points with corresponding hikes in the other two under the liquidity adjustment facility. The RBI has lowered its growth forecasts to 7.6% in 2011-2012. Considering past policy actions, 25 bps rate hike might lead to a hard landing of the economy.

The Indian Chamber of Commerce and Industry, Coimbatore expresses deep concern over the yet another interest rate hike by the RBI which will further weaken economic growth and impact all other indicators.

RBI has raised benchmark interest rates 13 times in the past 18 months. Yet the inflation continues to near double digits.

The deregulation of Saving Bank deposit rate is a welcome move and will benefit a large number of people. It is likely to lead to increased product innovations across banks through more competition.

On the flip side, however, it remains to be seen whether the smaller banks are able to effectively compete in the market with larger banks after this move.

The announcement of a 1% subsidy on home loan by the government which came almost at the same time at the Credit Policy announcement will surely help in arresting the future decline in demand for new housing.

Our Chamber hopes to see a halt in the interest rate increases and appeals to the Government to take further steps which need to be addressed by the Government promptly and adequately to reflect the RBI’s concerted actions on taming inflation.

- M. Krishnan, President