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NEW DELHI: Amidst receding inflation, industry body CII has asked the Reserve Bank to further cut key policy rates, including short-term lending (repo) rate by 1.5%, to spur economic growth.
Besides, it has asked the apex bank to slash key reserve ratios -- Cash Reserve Ratio and Statutory Liquidity Ratio -- by 2.5% and 2% respectively. The move could result in further injection of liquidity in the banking system.
Some measures of liquidity injection have been announced, but liquidity shortage could be in the order of about $ 40 billion required to meet short-term credit requirements by Indian companies, the chamber said.
RBI needs to bring CRR, the amount of deposits banks are required to keep with the central bank, to the regulatory floor levels of 3% from 5.5%, it added.
In addition, it said that RBI could consider a further reduction in SLR -- the amount of deposits banks are required to invest in government securities -- by 2%, and also allowing oil and fertilizer bonds to be acceptable for SLR.
It would increase the funds for investment by banks and this, along with a cut in repo rates, would provide the much-needed impetus to investment demand, it added.
Since RBI has begun borrowing selectively from a few banks, the reverse repo rate be brought down by 0.5% to allow the benefit of this to be reflected in lower cost of credit.
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