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2014-02-03

Rate hike by RBI may severely impact MSMEs

India Inc expressed disappointment over the Reserve Bank increasing the key rate by 0.25 per cent and hoped that banks would refrain from hiking lending rates as such a move will scuttle economic recovery.

India Inc expressed disappointment over the Reserve Bank increasing the key rate by 0.25 per cent and hoped that banks would refrain from hiking lending rates as such a move will scuttle economic recovery.

 

"The monetary policy statement of the RBI has disappointed the industry. Growth has been anaemic and investments have been hit hard over the last two years and there are clear signs of contraction in employment opportunities across industries,"Ficci said.

 

At a time when the factory production is in the negative terrain, the industry needs policy support from all directions to get the sector back on track, the chamber said.

 

It hoped that growth and employment issues would attract greater attention in the Reserve Bank of India's (RBI) policy decisions in the coming months.

 

The Reserve Bank today raised key policy rate by 0.25 per cent to 8 per cent in a bid to curb inflation, a move that may translate into higher EMIs and push up the cost of borrowing for corporates.

 

"We hope that following this policy move banks will not hike lending rates as it would scuttle any indications of a revival visible in select segments of the economy."

 

The CII said the central bank should now focus on boosting investments and economic growth rather than containing inflation.

 

"This is an opportune time to accord precedence to growth over inflation especially as prices are trending downwards, core inflation is within the comfort zone of the RBI and inflationary expectations are not unduly high in view of a robust performance by the agriculture sector," it added.

 

Some moderation in vegetable and fruit prices eased December retail inflation to three-month low of 9.87 per cent. Wholesale inflation too has declined to a five-month low of 6.16 per cent in December.

 

The RBI should take cognizance of the faltering investment and consumption demand which is preventing the economy from realising its growth potential, CII said.

 

Expressing concern over the RBI's move, Assocham said: "We seem to have been caught in some kind of vicious cycle which is taking a huge toll on growth".

 

Exporters body Fieo too said that the hike may severely impact the MSME sector.

 

"Exports may be further impacted, particularly the MSME export sector FIEO President, M Rafeeque Ahmed said.

 

The Tirupur Exporters' Association also expressed apprehensions that the increase in the key policy rate will certainly affect the besieged export sector.

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