India Inc criticises rate hike by Reserve Bank

Corporate India yesterday (March 17) took a dim view of the Reserve Bank of India raising policy rates and said the hike would have an adverse impact on industrial production.
A series of hikes in repo and reverse repo rates have had a visible impact on the industrial production numbers, which have decelerated substantially in recent months. There is also a lot of nervousness in the market given the global developments, according to Dr Rajiv Kumar, director general of Ficci. “RBI’s action in raising policy rates though expected will adversely affect growth prospects. RBI seems to be suggesting this by pointing to the upside risks for growth in the coming year,” he said.
Assocham said RBI increasing its repurchase rate by a quarter-point appears to be a fire-fighting exercise with limited options. The 25 basis points increase in short-term lending (repo rate) and borrowing (reverse repo rate) in RBI’s mid-term policy review will hit the manufacturing sector which is already witnessing a slowdown due to rising input costs and wages, said chamber chief Dilip Modi.
“This is the eighth time in 2010-11 that the central bank has raised key policy rates to cool prices,” he said, adding that the demand-side inflationary pressures are a larger concern than risk to overall economic growth.
The continuous hike in policy rates can have an impact on economic growth and consumption demand, the steep fall in industrial production in the recent months is also a major worrying factor for the industry, said Salil Bhandari, PHD Chamber president. He expressed concern that further tightening of monetary measures through hike in repo rate by 25 basis points from 6.5 per cent to 6.75 per cent may further increase the cost of borrowings for the banks thereby increasing the cost of borrowings by the industry from the banks, especially, by the small and medium enterprises.
CII is concerned that with the steady rise in lending rates, companies will find it difficult to fund investment activity in the coming year. Without adequate investments taking place, it may be difficult to achieve the desired growth rate of nine per cent in 2011-12. High interest costs at a time when global interest rates remain low will also make Indian companies globally uncompetitive, said Chandrajit Banerjee, CII director general
However, the planning commission has said the Reserve Bank of India has taken the “right” step in hiking key policy rates by 25 basis points as inflation is above the comfort level. “I think it is on long expected lines. I don’t think markets would be surprised by (RBI key rate hike) given that inflation is not in the comfort level, I think it has done the right thing,” planning commission deputy chairman Montek Singh Ahluwalia told reporters here.

 source: asianewsnet

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