The RBI\\\'s decision to raise the key repo rate has disappointed the industry, which said it\\\'s a double whammy that will hit growth momentum and businesses already facing a credit crunch.
The RBI's decision to raise the key repo rate has disappointed the industry, which said it's a double whammy that will hit growth momentum and businesses already facing a credit crunch.
Reserve Bank of India Governor Raghuram Rajan on Friday unexpectedly raised the policy rate, keeping its focus on controlling inflation, which it expects will be above projected levels in the current financial year.
The repo rate, or the short-term lending rate, was raised by 25 basis points to 7.5% with immediate effect.
"The need to anchor inflation and inflation expectations has to be set against the fragile state of the industrial sector and urban demand. Keeping all this in view, bringing down inflation to more tolerable levels warrants raising the repo rate by 25 basis points immediately," Rajan said in the mid-quarter policy review statement.
Rajan, in his maiden policy review, also partially eased liquidity-tightening measures though a reduction in the marginal standing facility (MSF) rate, at which banks borrow from the central bank, by 0.75% to 9.5%.
Chairman Apparel Export Promotion Council (AEPC) Dr A Sakthivel, on behalf of the garment & textiles industry has expressed disappointment over the increasing the repo rate.
In a statement he said, "The availability of capital is central to the growth of the garment sector. Most of the exporters are SMEs and easy availability is a critical input that leads to the smooth functioning."
"It will also impact the growth export momentum and employment generation. Our input costs have been growing on account of the spiralling inflation and energy cost."
"We were expecting that reduction in CRR that also did not happen," he added.
Engineering exports body EEPC said it felt "let down" by the repo rate hike.
Rajan kept the cash reserve ratio (CRR), the portion of deposits that banks are required to maintain with the RBI in cash, unchanged at 4%. It lowered the minimum daily maintenance of CRR to 95% from 99%.
State Bank of India, the country's largest lender, on Thursday hiked its base lending rate by 10 bps to 9.8% as well as term deposit rates.