RBI review: Rate hike will be a blow to industry, says Naina Lal Kidwai

HSBC Country Head Naina Lal Kidwai has said any increase in interest rates by the Reserve Bank of India (RBI), under pressure due to a falling a rupee, would be a 'body blow' to the industry and the country's growth.

Rupee, which plunged to a record low 61.21 against the dollar on July 8, has lost 7.3 per cent this year. There is a widespread speculation that the ongoing volatility in the rupee would compel the central bank to raise policy rates to stem inflationary expectations.

RBI is scheduled to unveil its first quarter review of the monetary policy on July 30.

"I hope that it stays stable because interest rate going up will be a body blow to industry and industrial growth, which is very important, at a very fragile position right now," Kidwai, who is also the president of industry body Ficci, said. "We need the confidence to return to industry in terms of investments, in terms of growth."

Inflation could again raise its head as imports have become dearer due to depreciating domestic currency, adding to the pressure RBI feels on rupee's volatility.

"I still believe and hope we will not see interest rate increase . But we really counting on interest rate reduction. We are still hoping for it," Kidwai said.

The banker also wished that banks should transmit series of interest rate reduction undertaken by the central bank since January 2012.

"We wanted transmission of those interest rates reduction coming from RBI into the important sector. That transmission has barely happened and now we would be lucky if it does not go up," she added.

Asked if policy rate hike would mean increase in cost of funds immediately, Kidwai said: "I don't think so because credit off-take has also been low."

Terming high current account deficit (CAD) a problem, Kidwai said: "I think imports we have done a lot on gold. We need to make sure tightening up on gold we don't mess up gold jewellery makers because they are complaining that they cannot access gold. So they have problem with exports."

CAD, the difference between the outflow and inflow of foreign currency, hit a record high of 4.7 per cent in 2012-13.

It is not good, she said, adding, "everything that value adds and exported and earns foreign exchange is good for us. So we need to resolve their problem but curbs on gold have really paid off."

With inputs from PTI