Indian industry chambers and associations have given mixed reactions on hikes of key rates by the Reserve Bank of India (RBI) in its monetary policy for fiscal 2010-11.
RBI Governor D. Subbarao, who unveiled the policy in Mumbai on Tuesday, hiked the repurchase (repo) rate and the reverse repo rate by 25 basis points each. At the same time, he also increased the cash reserve ratio to 6 percent from 5.75 percent earlier.
Reacting to the monetary policy, PHD Chamber has expressed disappointment as RBI in its annual monetary policy has hiked short term lending and borrowing rates by 25 basis points each.
The repo rate, i.e. short term lending rate has been hiked from 5 % to 5.25 %; while reverse repo rate i.e. short time borrowing rate has been raised from 3.5 % to 3.75 %.
Ashok Kajaria, President, PHD Chamber said, “This would increase the cost of borrowing for the industry and trade and increase the cost of funds, thereby impacting fresh investments particularly by the micro and small enterprises (MSEs).”
“The hike would particularly affect the business confidence at this time when most of the sectors are beginning to see the recovery.”
The hike in Cash Reserve Ratio i.e. the portion of deposits Bank Park with RBI has been increased from 5.75 % to 6 %. The hike in CRR which will come into effect from April 24, 2010 is expected to absorb Rs.12,500 crore excess cash from the banking system.
While commenting on the hike in CRR, Kajaria said, “This may again result in increased cost of borrowing for the businesses. This may also impact the cost of consumer loans including housing loans.
On the issue of taming inflation, he said, “To contain inflation it is important to improve the productivity and competitiveness in the major sectors of the economy by improving infrastructure, expediting economic reforms as well as better management of the food economy and addressing the supply side constraints.”
Meanwhile CII and FICCI welcome the move, Chandrajit Banerjee, Director General, Confederation of Indian Industry (CII) said, “RBI will need to calibrate further tightening given that industrial growth and investments need to be supported through the availability of funds at a reasonable rate.”
“CII believes that the RBI is aware of the challenges faced by industry at a time when credit growth is picking up and capacity expansions are taking place,” he added.
Amit Mitra, secretary general of the Federation of Indian Chambers of Commerce and Industry (FICCI) said, “This is the best bargain in the prevailing situation. But we had wished that the reverse repo rate would not have been raised so that banks do not resort to parking of funds. The hike in reverse repo should not encourage banks to park large additional funds with the RBI.”
He said that the RBI has been sensitive to the need for controlling inflation as well as not hampering growth drastically.
“The 25 basis points hike in repo rate would certainly put pressure on interest rates. However, given the situation we expect lending rate hike should not be imminent. The squeeze on liquidity by raising CRR by 25 basis points will also have an impact on the market,” he added.
However, given the prevailing liquidity conditions this should not be too hard either, he further said, The new rates were unveiled by Subbarao before chief executives of commercial banks. He said the revised repo and reverse repo rates are effective immediately, while the cash reserve ratio is to take effect from the week beginning April 24.
Source:http://bit.ly/niftydirectblogz13
