Prospects of rate cut affected as dollar, crude rise: ASSOCHAM Paper

New Delhi: Due to continuous pressure on rupee against dollar, prospects for cut in the policy rates by the RBI mabe be adversely affected.

The prospects for cut in the policy interest rates by the Reserve Bank of India (RBI) may be adversely affected by continuous pressure on rupee against dollar, firming of the U.S. interest rates along with the hardening of the crude oil prices, an ASSOCHAM Paper on the unfolding Macro Picture noted.

"It is true that there is an ample liquidity in the banking system following demonetization and lowering of inflation both at the WPI and CPI levels, but then this cannot be taken as a normal situation. Once the scrapped Rs. 500 and Rs. 1000 notes are replaced and fresh currency is injected back into the system fully, the ball game would change. Besides, there are certain commodities like sugar and wheat which are witnessing firming of prices," the Paper pointed out.

It said the biggest risks are emanating from the unfolding global scenario marking sharp strengthening of the U.S. dollar, raking in international money back into the American economy. Most of the Emerging Markets have witnessed huge outflows, exerting pressure on their currencies."While India may get consolation from the fact that we are less affected, the fact is we are amongst the largest crude oil importers in the world and net importing country.

So, the dollar strengthening has a direct and immediate impact on the country`s overall balance of payment position and would lead to inflation in the medium term," it added.Commenting on the situation, ASSOCHAM president Mr Sunil Kanoria said, "We are slowing moving away from a highly beneficial position of low crude oil prices and a stable and strong rupee which made the landed cost of energy quite cheap. This has helped the government finances as also benefited the consumers

By ANI Inputs