If the demands extended by the prominent industry groups are anything to go by, then the RBI should be following the Federal Reserve when it releases the quarterly review of Monetary Policy 2007-08 on Jan 29. The three major industry bodies, CII, FICCI, and ASSOCHAM, seem to be virtually imploring the central bank to slash the benchmark interest rates by up to 50 bps.

“With inflation under control, it is the right time to cut repo and reverse repo rates by 25 to 50 basis points”, suggests Sunil Bharti Mittal, president, CII. The two benchmark rates are currently at 7.75 per cent and 6 per cent respectively. On the other hand, FICCI president Habil Khorakiwala feels, “Now that the inflation is in tolerable limits, the RBI must cut the repo rate by at least 25 basis points.” Providing the rationale, V N Dhoot, president, ASSOCHAM, says, “The erosion of money from the stock markets at the time of heavy selling pressure by foreign investors leads to liquidity tightening which only makes the situation worse.”

In fact, the industry groups seem to be unanimously apprehensive of a major decline in the IIP, especially in the light of negative growth observed in the consumer durables sector during the period Apr-Nov 2007. “Such a step would also reduce the operating costs of exporting SMEs, who have been hit hard due to a rising rupee”, avers CII.