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RBI's Policy Rate Hikes Unavoidable Amid Inflation: Assocham
India is better placed on the inflation front than the advanced economies, which are witnessing higher inflation due to supply side issues on labour, and energy shortages, particularly in Europe,
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India is bracing for yet another policy rate hike by the Reserve Bank of India (RBI) in the range of 35-50 basis points as the move seems unavoidable amid global monetary tightening to tame inflation, Assocham has said.
The chamber has sought a balanced and smooth transition to the new trajectory for borrowing costs.
Seeking several measures for ensuring that adequate liquidity is maintained within the system, the Assocham has said, ''35-50 bps rate hike seems imminent and inevitable while the MPC may leave the CRR and SLR rates unchanged."
Sumant Sinha, President, Assocham said that while 35-50 bps increase in the benchmark rates seems unavoidable at this point in time given the continuous monetary tightening by the US Federal Reserve and other central banks.
He, however, noted that economic activity is at robust levels.
“India is in a sweet spot with growth coming from all quarters and inflation is relatively in control. Softening crude prices will augur well for the economy and we should start the interest rate cut cycle from the early part of FY24,” he added.
Among other suggestions, he said sustainability should be brought under the ambit of priority sector lending and only then tax-free bond issuances and lower capital charges and provisioning will result in lower borrowing costs for sustainable projects and drive the same.
Deepak Sood, Secretary General, Assocham said, "While the industry would like to see lower interest rates, the main challenge and the priority is to tackle inflation head-on so that we have sustainable growth.''
He stated that the intent of monetary intervention by the RBI shouldn’t result in the deflation of the economy and fiscal boosters may prove beneficial to control inflation.
The chamber, which has sent a detailed note to the RBI, in the run-up to the forthcoming credit policy review, said India is better placed on the inflation front than the advanced economies, which are witnessing higher inflation due to supply side issues on labour, and energy shortages, particularly in Europe.
Assocham also said that Indian lending rates have to remain somewhat aligned with the global trend to ensure that the impact of the frequent rate revisions by the Federal Reserve of the US and several other central banks is minimised in terms of outflows from emerging markets.
Stability in our foreign exchange market is another 'ask' before the RBI. Pressure on the rupee against the USD would be inflationary, the chamber note said, appreciating the RBI for striking a fine balance in the forex rates, it said.