Recessionary forces shaping up in the global economy, slowdown in key manufacturing sector and increasing prospects of copious capital inflows owing to arbitrage arising from cut in the US interest rate have set the stage for the Reserve Bank of India to cut the rates as it reviews the credit policy on Tuesday.

Overwhelming section of trade and industry feels that the apex bank will opt for softer interest regime as the Indian economy caught between early but tentative signs of sluggish domestic growth and weakening global demand would require policy support to retain the growth momentum.

Take cue from US

Ficci President Habil Khorakiwala feels that the US Fed cut is a signal for the soft interest rate regime globally. 

“RBI should follow the cue and cut the interest rates to support the economic growth. RBI must cut the repo rate by at least 25 basis points this month itself and then follow up with further cut of another 25 basis points within next two months,” he notes.

Echoing similar views CII President Sunil Bharti Mittal has strongly suggested an urgent need to cut interest rates to strengthen the macro economic fundamentals of the Indian economy in an increasingly uncertain global economic environment due to slowdown in the US economy.

Even a vast majority of Chief Executive Officers (CEOs) of leading corporate houses interviewed by the Assocham hopes for a cut  in the repo rate by the apex bank in view of the 75 basis points reduction in the Federal Reserve Rate.

The corporate heads feel that that the interest rates have reached their peak and are in fact hurting the industrial growth.

Around 90 per cent of them say that the continuous policy inaction of the regulator may hurt the confidence of the business community.

RBI has been following the tight monetary policy to avoid the inflationary pressures built up with around 9 per cent growth in the economy and major supply constraints.  The CEOs cite rise in global food and oil prices as the major impediment to Central Bank’s inaction towards the high interest rates.

However, around 78 per cent of them were of the opinion that with high prospects of US growth slowing down, the chances of further shooting up of crude prices should also recede.