Coming in the backdrop unrelenting inflationary pressure pushing WPI to 7.52% in November, the fastest since September 2012 and 7.05% in October RBI announced roll over of lending rate. It sends an affirmative signal about the desperation inherent in policy makers to let lose credit lines to ignite production and demand.
Achilles heel CPI inflation surged to a record 11.24% giving nightmares to the government. Realistically the inflation in food items is an off shoot of failure to invest in productivity improvement and in creating infrastructure for cold storage and logistics chain to handle the temporary glut and shortages. However the manufacturing sector has to bear the brunt in the short term culminating in catastrophic impact on industrial production and demand. Ramifications have been exponentially devastating crippling the demand from core sectors viz., automobile, construction, white goods, infrastructure projects etc.
The high interest rates have slowed down investment in new capacity creation and, therefore, the pace of job creation as well. This is a dangerous situation for a nation adding 15 million people to workforce every year. High interest rates have exacerbated the debt burden of companies passing through a difficult phase for reasons of stalled projects, unclear policy framework or down cycle.
RBI has hiked lending rate twice by 25 basis points each marking an achievement against heavy odds. The Reserve Bank of India (RBI) in its monetary policy review yesterday kept short-term lending rate unchanged at 7.75 per cent, while the cash reserve ratio (CRR) remained at 4 per cent.
Coming on the heels of surprise roll over Country's largest bank SBI cut home loan rates by up to 0.4 per cent for new borrowers. Even though steel market has not reacted quickly expectations are rife about moderate turn around in market sentiments in twilight of FY13-14.