RBI rate hike to be a body blow to industry: Kidwai
As the weak rupee raises pressure on RBI to hike interest rates, HSBC country head Naina Lal Kidwai said any increase would be a 'body blow' to industry and growth.business Updated: Jul 22, 2013 15:23 IST
As the weak rupee raises pressure on RBI to hike interest rates, HSBC country head Naina Lal Kidwai said any increase would be a 'body blow' to industry and growth.
"I hope that it stays stable because interest rate going up will be a body blow to industry and industrial growth, which is very important, at a very fragile position right now," Kidwai, who is also the president of industry body Ficci, said.
The Reserve Bank is scheduled to unveil its first quarter review of the monetary policy on July 30.
"We need the confidence to return to industry in terms of investments, in terms of growth," she said.
Kidwai, however, wished that banks should transmit series of interest rate reduction undertaken by RBI since January, 2012.
Rupee, which plunged to a record low 61.21 against the dollar on July 8, has lost 7.3 per cent this year. There is a widespread speculation that the ongoing volatility in the rupee would compel RBI to raise policy rates to stem inflationary expectations.
Inflation could again raise its head as imports have become dearer due to depreciating domestic currency.
"I still believe and hope we will not see interest rate increase. But we really counting on interest rate reduction. We are still hoping for it," she said.
"We wanted transmission of those interest rates reduction coming from RBI into the important sector. That transmission has barely happened and now we would be lucky if it does not go up," she added.
Asked if policy rate hike would mean increase in cost of funds immediately, Kidwai said "I don't think so because credit off-take has also been low."
It has been low because of large user are in infrastructure project which has not yet taken off, she said, adding, as and when it takes off and banks begin to open the tap again for these project, it can cause liquidity crunch and that is when RBI that would increase the LAF limit.
Terming high current account deficit (CAD) a problem, Kidwai said: "I think imports we have done a lot on gold. We need to make sure tightening up on gold we don't mess up gold jewellery makers because they are complaining that they cannot access gold. So they have problem with exports."
It is not good, she said, adding, "everything that value adds and exported and earns foreign exchange is good for us. So we need to resolve their problem but curbs on gold have really paid off."
CAD, which is the difference between the outflow and inflow of foreign currency, hit a record high of 4.7 per cent in 2012-13.