RBI Hikes 25 Basis Point Rate Hike Rattling Commerce & Industry

CHAMBERS of Commerce and Industries have urged India’s central banker to revert to the regime of benign interest rates apprehending that that unexpected 25 basis points rate hike announced by Reserve Bank of India will impact adversely the country’s growth prospects with creation of job opportunities.   Some of them don’t rule out continuance of the hawkish monetary policy. Surprising macroeconomists and trade and commerce RBI for the first time in four and a half years has raised key interest rate by 25 basis points to 6.25 per cent expressing concern over inflation concerns following galloping crude oil price in international market. India imports over seventy per cent of its of requirements from abroad.“Given that inflation is being led by supply side issues, CII believes that raising interest rate would hurt growth while proving unequal to the task of tackling inflation,” CII Director General Chandrajit Banerjee said in a statement .He however hoped that the RBI would reassess and revert to the policy of benign interest rates which would be growth supportive. Assocham’s Secretary General D S Rawat seemed to be prophetic saying despite our reservation; hardening interest rate regime will not end soon.“The rate hike gives a clear hint to India Inc to push for growth, take investment decisions as it can now foresee growth rate to pick up,” said George Alexander Muthoot, MD, Muthoot Finance Limited. ICRA, says  rate hike will push up bank lending rates, impacting their margins, and may also test the strength of the investment recovery in 2019 Financial Year ending on March 31, 2019.RBI has resorted to interest rate hike following domestic considerations which are causing an increase in inflation, as well as international ones like the interest rates, it said .Domestic factors which will hurt inflation will include house rent allowance revision by state Governments, surge in minimum support prices and also impact of the crude price hikes.Oil prices and a weaker rupee resulted in the “pre-emptive” rate hike by the RBI’s monetary policy committee (MPC), the six-member rate-setting panel..RBI Governor Urjit Patel said that the growth momentum is also picking up in the economy and the MPC decided to focus on its core objective of inflation targeting. Moneycontrol explains that Repo rate is a rate at which banks borrow from RBI for short periods up to 7 or 14 days but predominantly overnight. RBI manages this repo rate which is the cost of credit for the bank. This becomes a floor below which the short-term interest rates don’t go. Higher the repo rate means the cost of short-term money is very high. Lower the repo rate means the cost of short-term rate is low which means at higher repo rates the economy growth may slow down whereas at lower repo rate economy growth may get enhanced, says Moneycontrol.

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