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CII not for interest rate hike to combat inflation

CII opposes any move to increase interest rate by RBI to combat inflation, saying it will result in further fall in industrial production.

business Updated: Apr 06, 2008 16:49 IST

Industry chamber CII has opposed any move to increase interest rate by the Reserve Bank to combat inflation, saying that it would result in further fall in industrial production.

The Reserve Bank, which is scheduled to announce its annual monetary policy on April 29, is under pressure to increase interest rates to dampen the inflation, which touched three year high of 7 per cent on March 22.

The industry is apprehending that the government and the Central Bank could sacrifice GDP growth to check inflation by favouring hike in interest rate. It would hit their profit margins as demand for products would fall due to rising cost.

"With global economic conditions worsening along with increasing price trend of commodities internationally, any move that will choke investments in the economy will add to the declining IIP (industrial production) and prolong a turnaround," CII said in a statement.

The apex bank could send a signal that interest rates would be cut to stimulate investments and growth or in a worst -case scenario, maintain status quo on monetary measures, it said.

It claimed that restricting demand to manage supply side constraints would not augur well for growth, the industry body said.

It pointed out that the current inflation has been a supply side driven phenomenon which needs to be dealt cautiously so as to not sacrifice growth over price stability.

"Any monetary measures that are aimed at controlling inflation should be judiciously employed so as to not sacrifice growth," CII said.