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RBI monetary policy: Repo rate hike to hurt India's growth prospects, say industry bodies

New Delhi: The industry on Wednesday said 25 basis points rate hike by the RBI will hurt India's growth prospects and exhorted the central bank to revert to the policy of benign interest rates.

However, a section from India Inc said the decision of the Reserve Bank (RBI) was a clear hint to the industry to push for growth by taking investment decisions, while some believe the central bank's hawkish monetary policy stance is here to stay for a while.

The Reserve Bank for the first time in four-and-half-years raised key interest rate today by 25 basis points to 6.25 percent on inflation concerns arising from surge in international oil prices.

"Given that inflation is being led by supply side issues, CII believes that raising interest rate would hurt growth while proving unequal to the task of tackling inflation," CII Director General Chandrajit Banerjee said.

He hoped that going forward, the RBI would reassess and revert to the policy of benign interest rates which would be growth supportive.

"Going forward, the hardening of interest rate scenario is here to stay at least in the short term, however much we may not like it," Assocham Secretary General D S Rawat said.

 RBI monetary policy: Repo rate hike to hurt Indias growth prospects, say industry bodies

Representational image. Reuters.

"The input cost pressures as highlighted by the RBI policy review would only increase for the exporters with the hiking of the repo rate by 25 basis points," engineering exporters' body EEPC India Chairman Ravi Sehgal said.

"The rate hike gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee growth rate to pick up," said George Alexander Muthoot, MD, Muthoot Finance Limited.

Realtors' body Naredco's national president Niranjan Hiranandani said the hike is justified on account of inflationary trends, global hardening of interest rates as also petroleum prices moving upwards.

"It will not make a major difference to real estate. However, in the long run, we would prefer rates coming down," he said.

HDFC Bank said the Reserve Bank is likely to go for more rate hikes like the one today on risks from factors like the minimum support prices for farm produce and firm global commodity prices.

In the second bi-monthly monetary policy for the current fiscal, the central bank revised upwards the retail inflation range to 4.8-4.9 percent in the first half of 2018-19, and 4.7 percent in the second half.

It includes the impact from HRA for central government employees, with risks tilted to the upside.

With all the six members voting for a increase in policy rates, the Monetary Policy Committee raised "repo rate by 25 basis points and kept the stance neutral", RBI said in a statement here.

Excluding the impact of HRA revisions, CPI-based inflation is projected at 4.6 percent in first half of 2018-19, and 4.7 percent in H2, RBI said.

RBI retained the GDP growth for the financial year 2018-19 at 7.4 percent.

Updated Date: Jun 06, 2018 18:48:30 IST