CII welcomes CRR cut by RBI

New Delhi, Jan.24 (ANI): The Confederation of Indian Industry (CII) on Tuesday welcomed the Reserve Bank of India's move to cut Credit Reserve Ratio (CRR) by 50 base points to 5.5 percent.

In a statement it said that this cut would help ease the liquidity situation in the banking system which has remained tight since November 2011.

It further said that the CRR cut gives a clear signal that the RBI has recognized the challenges to growth owing to a weakening demand condition and has started to address that after successive increases in the headline interest rate cumulating to 375 base points.

Though congratulating RBI Governor D V Subba Rao for his decision to reduce the CRR, the CII, however, expressed its concern with the RBI's decision to downgrade the GDP growth forecast for 2012 to seven percent and non-food credit growth to 16 percent.

The CII has also noted the RBI's observations on the challenges being posed by a high fiscal deficit.

"In our pre-budget memorandum, we have pointed out this to be one of the greatest risks facing the country, and therefore, CII has suggested that there be a clear roadmap for bringing down fiscal and revenue deficit to 3 percent and zero percent respectively over the next five years," the statement said.

"While CII agrees with the outlook of the RBI, we believe that sooner than later, the RBI needs to start reducing the repo rate as well in order to start the investment cycle, which has weakened," it added.

"However, it appears implicit in the RBI's statement that the RBI would wait for the Government to signal deficit management before interest rate cuts. CII feels that a coordinated response from the Government and the RBI is in order, like it was observed when the economy was in crisis in 2008-09, the CII statement concluded. (ANI)