The monetary regulator RBI should cut the policy rates by 100 basis points to spur growth, said KV Kamath. Mr. Kamath, chairman of ICICI Bank, the largest private bank in the country believes that a reduction in repo rate is required to induce consumption in the economy, which inturn will lead to growth.
"My only point is that we are not sure that holding the interest rate where it is now is doing anything to contain inflation. And the question is now whether it is doing harm to the growth story of the country," he added reiterating the importance of lower rates in economic growth.
On the other hand, RBI has maintained that unless the inflation comes down to 5% 'comfort level' the policy rates can not be tweaked below its present level of 8%. RBI governor, Subbarao had left the policy rates unchanged since April, when he reduced the repo rate by 50 basis points.
However, both RBI and the PM expect a growth rate of 6.5% for the current fiscal, but projections by private agencies have suggested it to be very optimistic. Few agencies even rate it below 5%; the economic growth already hit its 9 year low when it grew by 5.3% for March quarter.
The monetary policy review is slated to be on September 17, where the entire banking sector is waiting eagerly for the regulator to reduce policy rates.