Hike in repo may not push up interest rates: India Inc | business | Hindustan Times
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Hike in repo may not push up interest rates: India Inc

business Updated: Apr 20, 2010 17:57 IST

India Inc on Tuesday said a 25 basis point hike in short-term lending rate by the RBI will put pressure on interest rates though it may not result in an immediate hike.

"The 25 basis point hike in repo (rate at which it lends to banks) would certainly put pressure on interest rates. However, given the situation we expect lending rate hike should not be imminent," FICCI secretary General Amit Mitra said.

He said that the hike in the Cash Reserve Ratio (CRR), the amount that banks are mandated to park with the Reserve Bank, would somewhat affect the market, but added the RBI has kept a fine balance between growth and inflation.

"This is the best bargain in the prevailing situation. RBI has kept an eye on growth, while addressing the issue of inflationary pressures," he added.

The apex bank in its monetary policy for 2010-11 hiked the repo and the reverse repo to 5.25 per cent and 3.75 per cent, respectively, and the CRR to 6 per cent.

Echoing the view PHDCCI also said that the hike would increase the cost of borrowing for the industry and would impact fresh investments, particularly by the micro and small enterprises.

"The hike would particularly affect the business confidence at this time when most of the sectors are beginning to see the recovery," PHDCCI President Ashok Kajaria said.

Kajaria also said that the hike in CRR may result in increased cost of borrowing for the businesses.

Another industry chamber CII said that going forward, the RBI will need to calibrate further tightening given that industrial growth and investments need to be supported by making funds available at a reasonable rate.

Assocham said that the increase in CRR would ensure withdrawal of a modest amount of liquidity by Rs 12,000 crore to further contain inflationary expectations.