Interest rates are on neutral gear after more than year of a soft regime to tide over a global meltdown and local sluggishness.
Industry is on guard after Reserve Bank of India governor Duvvuri Subbarao on Tuesday upped by a quarter percentage point three of the key determinants of the monetary system.
Inflation is expected to moderate, but if it gets worse, you could see loans for both industry and retail consumers getting costlier.
The governor, setting the tenor of money supply for the new fiscal year hiked the Cash Reserve Ratio, the repo rate and the reverse repo rate by 25 basis points (0.25 percentage point) each. While the Repo rate has been raised to 5.25 per cent, the reverese repo and the CRR have been hiked to 3.75 per cent and 6 per cent respectively.
CRR is the share of deposits that banks must park with the RBI, which lends to banks at a rate called repo and borrows at a reverse repo rate.
Amit Mitra, secretary-general of industry chamber FICCI said the rate increases would put pressure on interest rates, but added, “Given the situation we expect lending rate hike should not be imminent.”
Inflation was worrying for the RBI as the number hit 9.9 per cent in March 2010, overshooting the projected 8.5 per cent.
“Developments on the inflation front are worrisome,” said the policy statement. “What was initially a process driven by food prices has now become more generalised.”
The RBI projected GDP to grow at 8 per cent in 2010-11 on assumption of a normal monsoon, up from an estimated 7.2 to 7.5 per cent in 2009-10.