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RBI will hike repo & reverse repo rates - FIEO Chief
26
Jul '10
Mr A Sakthivel, President, Federation of Indian Export Organisations (FIEO) while anticipating announcements in the Monetary Policy stated that the alarming rate of inflation coupled with fuel inflation adding 100 basis points to the WPI are pointers to the fact that RBI necessarily would hike repo and reverse repo rates.

The extent of increase would be determined by the assessment of the requirement of credit off-take and the liquidity in the banking system so as not to hamper growth while reining in inflation which is an onerous task as is evident from recent experience.

FIEO Chief elaborated that the recent RBI release of 23rd July, 2010 indicates a credit off-take of 21.7% vis-à-vis corresponding period last year at around 16%. In the existing environment which is tight on liquidity and banks are borrowing from repo window of the RBI, the repo rate becomes the policy rate and may increase to 5.75% from the existing 5.5%.

If the reverse repo is increased by an equal measure than the differential of 1.5% between the two may result in volatility in interest rate. This in turn could impact credit off-take which at present is largely skewed towards the infrastructure and retail segments.

Also, its impact on the newly introduced base rate particularly for the MSME export sector needs to be monitored periodically to assess the credit growth for the MSME export sector for which there is no separate data/ monitoring available in the RBI (DESACS).

This data monitoring at frequent intervals for the MSME export segment may be crucial in the existing global slowdown if we are continue to nurture / sustain exports as a segment as has been done in the last four decades.

Mr A Sakthivel also suggested that exports is a national priority and therefore export credit should be pegged at the base rate so as to impart competitiveness to the sector.

Federation of Indian Export Organisations (FIEO)

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