FIEO expects RBI to cut interest rate to help MSME exports

The Reserve Bank of India (RBI) may consider LIBOR plus lending to the micro small and medium enterprise (MSME) export sector besides a rate cut for rupee lending given some moderation in CPI, said exports body Federation of Indian Export Organistions (FIEO) in a statement Monday. 

"RBI could consider a rate cut in the policy given that there is a upsurge in credit and a demand by banks to cut CRR to provide credit to industry," said M Rafeeque Ahmed, President, FIEO while commenting on the forthcoming announcement of the monetary policy review on 1st April prior to the annual policy. He stated that as the per the RBI update of 21st march 2014, WPI had settled at 4.7 percent and CPI stood at 8.1 percent, with credit to the commercial sector moderating at 14 percent.

FIEO Chief stated that net foreign exchange assets of banks have grown to 17.3 percent and given that exports have shown a decline of 3.7 percent in USD terms over a year, and rupee is again in a volatile mode, banks could consider providing export credit in foreign currency at LIBOR + rates as against a deregulated regime of export credit in foreign currency announced a couple of years back, added Ahmed. This would help the MSME export sector which is unable to borrow through ECB route easily. 

FIEO Chief stated that providing foreign currency loans at competitive rates in a scenario of appreciating rupee/ narrowing CAD due to clamp on gold/ and India's exclusion in respect of many important products from the European Union (EU)'s GSP benefits would imply that mineral products, textiles, motor vehicles, bicycles, chemicals etc, which originate from India, will no longer get preferential treatment attracting higher duties in EU. 

This would further impact exports even though markets in advanced countries are showing buoyancy in terms of consumption patterns/volume of world trade increasing by 0.6 percent in January 2014 said Ahmed.