RBI rate hike may impact economic growth: Industry

NEW DELHI: India Inc today expressed apprehensions that the RBI's decision to hike short-term lending and borrowing rates could lead to higher interest rates and impact the growth momentum of the economy.

Industry chambers Ficci, CII and Assocham asked the Reserve Bank to strike a good balance between maintaining the country's growth and managing inflation.

"The move could have an impact on interest rates and the cost of borrowing, which in turn could affect areas which are still to pick up and come full stream," Ficci Secretary General Amit Mitra said.

Echoing Mitra, Assocham President Swati Piramal said that the policy rate hikes are likely to increase lending as well as deposit rates of banks immediately.

However, CII was of the opinion that the banks would not immediately raise the lending rates.

"We are reassured by the RBI's statement that it is unlikely to increase rates again in the near future," CII Director General Chandrajeet Banerjee said.

In the RBI's mid-year policy review, it announced an increase of 25 basis points in key short-term lending and borrowing rates to 6.25 per cent and 5.25 per cent respectively, to tame high inflation.

Headline inflation stood at 8.6 per cent for August, while the food inflation at an elevated 13.75 per cent for the week ended October 16.

The RBI retains GDP growth forecast at 8.5 per cent for 2010-11. In the first quarter of 2010-11, the economy grew at 8.8 per cent.

Ficci said the policymakers' focus be on extending growth which would lead to greater employment.