RBI rate hike will hit investment, growth, says India Inc

Last Updated 29 October 2013, 13:48 IST

The Reserve Bank of India's decision to hike repo rate 0.25 percent will hurt investments and economic growth, industry leaders and experts said.

Director General of the Confederation of Indian Industry (CII)  Chandrajit Banerjee said the hike in repo rate has come as a disappointment to industry, especially as the investment climate continues to be weak and growth outlook remains muted. 

“The RBI could have refrained from affecting a hike in repo rate as industry is already reeling under pressures of high cost of capital and low availability in a tight liquidity situation,” Banerjee said. 

In its second quarter review of the monetary policy for 2013-14, the RBI raised the repo rate by 25 basis points or 0.25 percent to 7.75 percent. Repurchase or repo rate is the rate of interest that banks pay when they borrow money from the central bank to meet their short-term fund requirement. 

This is the second increase in the policy rate in less than two months. The central bank had also hiked the repo rate by 0.25 percent in its previous review announced Sep 20. FICCI secretary general A. Didar Singh said deposit as well as lending rates are likely to go up following the RBI's move. 

“Given the slowdown in economic growth, weakening pace of investment activity and downswing in consumption, we were hoping that the RBI would steer focus towards supporting growth that is so essential for employment generation in the economy,” Singh said. 

Real estate developers said the move would force them to delay projects. 

“This 25 basis points hike by Reserve Bank is not a good sign for the real estate industry as a whole. It will encourage banks to increase their interest rates which will be an extra burden to the buyers who are planning to buy properties this festive season,” said Aman Agarwal, director, K.V. Developers. 

“It may force them to defer their decision which will not be a good sign for the industry as a whole,” Agarwal said. 

“The message from RBI is clear, as long as inflation is around, asking for a rate cut would remain a wish list,” said Rana Kapoor, president of industry lobby Assocham. 

Kapoor, who is also managing director of Yes Bank, said, “All efforts must be made through coordinated efforts by the centre, states and the RBI to fight out the price rise so that the economy can be brought back to the growth trajectory.”

EEPC India Chairman Anupam Shah said the rate hike has come as a “disappointment for exporters since the move would only increase the cost of borrowings for the international traders.” 

Chairman of Apparel Export Promotion Council A. Sakthivel said the rate hike would hurt the industries already reeling under financial difficulties due to high cost of capital. Â“Increase in repo rate will act as a detrimental to the industry because it will further stress the liquidity condition,” Sakthivel said. 

(Published 29 October 2013, 13:47 IST)

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