The Associated Chambers of Commerce and Industry of India (Assocham) has said the arrival of kharif crops and recent stability in the rupee will help bring down inflation, and the Reserve Bank of India (RBI) is likely to take this into account and reduce the marginal standing facility (MSF) rate - at which banks borrow from it - in its upcoming policy review.
"The recent stability in rupee coupled with kharif output will ease sequential inflationary pressures going forward. This should prompt the RBI to continue on the path of monetary policy normalisation by reducing the MSF rate further," Rana Kapoor, president of the industry body, said on Tuesday.
The RBI on October 7 reduced the MSF rate to 9 per cent from 9.5 per cent to improve liquidity in the system.
This was a second reduction in the rate since the September 20 mid-quarter monetary policy review, when it was lowered to 9.5 per cent from 10.25 per cent.
Meanwhile, higher prices of onion and other vegetables and fruits pushed up inflation for the fourth straight month to 6.46 per cent in September from 6.1 per cent in August.
The apex bank took steps in the middle of July, including raising the MSF rate by 2 per cent to 10.25 per cent, to tighten liquidity in an attempt to curb volatility in the rupee-dollar exchange rate. MSF allows banks to borrow money from the RBI at a higher rate when there is a significant liquidity crunch.
The RBI is scheduled to unveil its second quarter review of monetary policy on October 29.
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