India Inc on Friday said the Reserve Bank of India's (RBI)
12th rate hike since March 2010 is unlikely to tame
rising inflation and could instead lead to further slowdown in investments and industrial growth.
"Even as RBI justifies this rate hike to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective," Ficci Secretary General Rajiv Kumar said.
SPECIAL: Is RBI's tightening monetary policy helping at all? Kumar added, it is ironic that RBI is now clearly banking on
inflation rates to start declining towards the latter part of the current fiscal, based purely on base effect.
Industry body Assocham expressed a similar view that successive rate hikes by the central bank have not been able to control rising inflation.
RBI has followed
hawkish monetary policy in the past 18 months to tame high inflation, which was still ruling at about 9.8 per cent in August.
The Reserve Bank on Friday raised the short-term lending (repo) rate by 25 basis points to 8.25 per cent and the short-term borrowing (reverse repo) rate will move up by a similar percentage point to 7.25 per cent.
Realtors see housing prices increasing CII said there is an urgent action required to step up the growth momentum, especially in the manufacturing sector.
Growth in industrial production slipped to a 21-month low of 3.3 per cent in July. The country's economic growth also moderated to 7.7 per cent during the April-June quarter this fiscal, the slowest growth in six quarters.
SPECIAL: The rate hike was expected Referring to economic slowdown in the US and European economies, Ficci said RBI has made a reference to the worsening global growth, but surprisingly went ahead with a rate hike citing a jump in the August inflation rate to 9.8 per cent, from 9.2 per cent in July.
The industry chambers are also worried about
increase in home loans and other related sectors that would slow down consumption, further hitting the growth.
Global economic uncertainties and high interest rate environment is likely to put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum, Assocham Secretary General D S Rawat said.
Home loans set to get costly yet again Going forward, RBI said the monetary stance will be "influenced by signs of downward movement in the inflation trajectory..."
GDP growth during the first quarter (April-June) of the 2011-12 financial year moderated to an 18-month low of 7.7 per cent from 8.8 per cent in the corresponding period year ago.
The slowdown was also reflected in industrial output growth rate which dipped in July to 3.3 per cent, the lowest in 21 months.
The Reserve Bank said food inflation is near double digits, despite the normal monsoon, underlining the fact that it is driven by structural demand-supply imbalances and cannot be dismissed as a temporary phenomenon.
It further said that hike in petrol prices by Rs 3.14 per litre, with effect from September 16, will have a direct impact of 7 basis points on WPI inflation, in addition to an indirect impact with a lag.
RBI's decision, though praised by Planning Commission Deputy Chairman Montek Singh Ahluwalia and
PMEAC chairman C Rangarajan, evoked sharp reaction from the industry chambers.
Ficci Secretary General Rajiv Kumar said, "This rate hike will only exacerbate the current fears of impending slowdown."
However, PMEAC chief Rangarajan said, "The RBI has taken the correct decision. In the context of rising inflation, RBI had no other option but to raise interest rates."
Expressing similar opinion, Ahluwalia said, "The rate hike is within a range that is not unreasonable" as inflation has continued to remain high.
Special 
