Rate hike fears have dented industry confidence: Ficci | business | Hindustan Times
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Rate hike fears have dented industry confidence: Ficci

business Updated: Jul 25, 2010 10:50 IST
Indian economy

Fears of another round of hikes in Reserve Bank of India's (RBI) policy rates and rising borrowing costs have shaken the confidence of the industry, which had started to rebound after the global downturn, a Ficci survey said.

The macro-economic situation was getting vitiated on account of high inflation rates and the perpetual question mark over the state of the global economy, it added.

"These developments have dented the confidence level of corporate India," said Ficci’s Business Confidence Survey, which was conducted in July.

The performance of industries would be impacted if the RBI hikes key policy rates next week at its monetary review, it said.

On July 27, the RBI is scheduled to review its first quarter monetary policy. Earlier this month, it had increased the short term borrowing and lending rates by 25 basis points.

About 90 per cent of the participants felt that "another hike at the forthcoming monetary policy will certainly further jack up their cost of credit".

Industrial output rose by 11.5 per cent in May, from 2.1 per cent in the same month last year.

It also said that wages and raw material prices are on the rise.

"In these circumstances, another hike in policy rates by the central bank will hit the industry hard, when international pressure is getting tougher," it said.

Of the 311 companies that participated in the survey, a majority said they were facing stiff competition from imported goods.

It also said the base rate regime, a new system for benchmarking lending rates that came into effect from July 1, would make borrowing costlier for companies.

"Companies do not foresee any benefit accruing to them in terms of lowering of borrowing costs, resulting from this change," it said.

While most of the Western economies have started showing signs of recovery, some European countries are still struggling to come out of the financial crisis.