Inflation, geopolitical situation to weigh on RBI credit policy

Sunday, Aug 3, 2014,14:16 IST By metrovaartha A A A

Ahead of the Reserve Bank’s ensuing credit policy review, corporate leaders expect small relief in the lending rates as inflationary expectations are still likely to weigh on the mind of the central bank in the wake of deficient rainfall and troubled geopolitical situation posing risks of the oil prices again shooting up, an ASSOCHAM precredit policy survey has indicated. As many as 73 per cent of the corporate leaders comprising CEOs, CFOs and senior functionaries said the RBI would not be ambitious enough to go in for a big cut in the benchmark interest rates, however much the business chambers want it, the survey noted. Corporate India feels that Finance Minister Arun Jaitley assertion that the interest rates would head southward seems clearly contingent upon a decisive drop in inflation, which in turn, is a function of agriculture output, particularly the food prices, apex industry body ASSOCHAM said in a statement today. In a way, the entire interest rate paradigm would revolve around inflation. However, the positive side is that some of the concerns and outcry witnessed twothree weeks ago on prices of onion and other vegetables seems to be less vociferous which may give some elbow room to the RBI to at least announce small cut in the interest rates. Interest rates are not the only factor affecting the industrial growth and other spokes of the economic activity. But they play a key role in generating consumer confidence and reducing the cost of funds for the industry, which is highly leveraged in some segments like real estate, telecom, aviation, energy, infrastructure etc, stated ASSOCHAM, days ahead of the RBI credit policy review on August 5. As many 57 per cent of the 181 corporate leaders polled in the last week of July, said they expect that the RBI policy will place a considerable weightage on the geopolitical situation in Iraq, Syria, Ukraine and its impact on the global energy prices. Though some downward trend has been seen in prices of crude oil, the respite may prove to be temporary, the survey noted.