Monday, November 28, 2022

Moderate rate hikes: Industry to the RBI

Moderate rate tightening: Industry to RBI


MUMBAI:India is not immune to the global "polycrisis," so the Confederation of Indian Industry (CII) has asked the Reserve Bank of India (RBI) to slow down its monetary tightening.The risk of a global recession posed by rate hikes, high inflation, and worsening financial conditions is referred to as the polycrisis, which refers to multiple obstacles.

The CII's statement comes before the RBI's MPC (monetary policy committee) meeting on December 5-7.The majority of economists anticipate that the RBI will reduce its rate hikes from the initial 50 basis points (100bps = 1 percentage point) announced following the previous three MPC meetings to approximately 35bps.The CII has suggested a 25-35bps rate increase.After consumer inflation fell below 7% in October, the expectation is for a lower rate hike.Several agencies had decreased their growth projections in November to levels below the central bank's forecast of 7%.

"A host of high-frequency indicators show that domestic demand is recovering well, but the current global polycrisis is likely to affect our growth prospects as well.The CII stated, "The RBI should consider moderating the pace of its monetary tightening from the earlier 50bps given the headwinds to domestic growth primarily emanating from global uncertainties."

V Ananta Nageswaran, chief economic advisor, was the first to warn about the global polycrisis, which could hurt India's exports.To help accelerate progress toward a normalized growth scenario, the early signs of domestic recovery must be preserved.The CII stated, "The RBI should use all of its tools, as it has in the past, to ensure that its actions are inflationary."

Until recently, the industry supported the RBI's rate hikes, which have increased by 190 basis points since May 2022. However, corporations are beginning to feel the negative effects."Both toplines and bottomlines have moderated on a sequential and annual basis," according to CII's analysis of results for 2,000 businesses in the second quarter (July to September 2022).Balance in speed of financial fixing is the need of great importance," said CII.

The gap that exists between deposit growth and credit growth makes the case even stronger for an interest rate increase. An additional hike will encourage savers, which will encourage deposit growth and help narrow the credit-deposit wedge.

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