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Industry sad on rates, happy on inflation

Industrialists on Wednesday gave a mixed reaction to measures announced by the Reserve Bank of India, reports Gaurav Choudhury.

india Updated: Jan 31, 2007 19:52 IST

Industrialists on Wednesday gave a mixed reaction to measures announced by the Reserve Bank of India (RBI), stating that a hike in the repo rate by 0.25 percentage points would lead to hardening of interest rates but maintained that it would help control inflation.

"The increase in repo rate will have an indirect impact on lending rate which off late have been hardening. Although we appreciate RBI's concerns on overheating in the market, at this juncture it is critical for the industry to be able to have access to bank funds at globally competitive rates," said the Federation of Indian Chambers of Commerce and Industry (Ficci) in a statement.

"The ever-increasing lending rates have all the more adverse impact on small and medium enterprises which do not have any other recourse to fund their expansion plans," said FICCI.

President of The Associated Chambers of Commerce and Industry of India  (ASSOCHAM) Venugopal Dhoot said that the hike in repo rate by 0.25 per cent will eventually raise the cost of borrowings with interest rates.

Confederation of Indian Industry (CII) president R Seshasayee termed the measures as "pragmatic", stating "these would ensure that inflation and inflationary expectations are addressed adequately, while growth momentum is retained".

"With a 25 basis points increase in the repo rate, the RBI has sent a strong signal of its hawkish position on combating inflation. In the given situation of liquidity the rise in the repo rate would have the desired impact and help reduce headline inflation, which has been hovering around 6 per cent," said Seshasayee.

PHDCCI president said that the increase in repo rate "will lead to further hardening of interest rate structure in the economy, especially the lending rates."

Email Gaurav Choudhury: gaurav.choudhury@hindustantimes.com