Increase in refinance would provide necessary liquidity to MSME Export sector but further cut in interest rates may be an effective option to boost sagging exports: M. Rafeeque Ahmed, President, FIEO
FIEO/PUB/PR /62/12 - June 18, 2012
Increase in refinance would provide necessary liquidity to MSME Export sector but further cut in interest rates may be an effective option to boost sagging exports: M. Rafeeque Ahmed, President, FIEO
Mr M Rafeeque Ahmed, President, Federation of Indian Export Organisations (FIEO) while commenting on the status quo on polcy rates stated that in order to further augment liquidity and encourage banks to increase credit flow to the export sector, the Reserve Bank has increased the limit of export credit refinance from 15 per cent of outstanding export credit of banks to 50 per cent, which will potentially release additionally liquidity of over `300 billion, equivalent to about 50 basis points reduction in the CRR. This would help the Banks to replenish the funds earmarked for the MSME export sector and ensure that funds are easily available to the sector in adequate measure.
FIEO chief stated that policy rates were increased 225 basis points in 2011 and a cut of 50 basis points has already taken place in 2012.
A IMF study shows that 1% cut in interest rate is equivalent is 10% depreciation if nominal effective exchange rate and although price elasticity of Indian exports is low it may be appropriate to exercise the option of a interest rate cut in the current fragile global situation given the poor IIP performance / fall in GDP to a 10 year low,exports on the down-trend in the last 3 months.
