The Hindu Business Line : Mixed reaction to RBI move

Reacting to the 25 basis point increase by the RBI in repo and reverse-repo rates each to seven per cent and six per cent respectively in the quarterly review of the monetary policy, industry chamber FICCI has called the decision `inappropriate.' The chamber feels that the RBI should have taken more pro-active steps for encouraging growth.

The chamber believes that the move will affect the operational costs of Indian business and particularly hit the small and medium scale sector. In the face of rising interest costs, large corporates could resort to raising equity capital or debt funds from abroad. It is the small and medium sector which will be left with no options, feels the chamber.

The Confederation of Indian Industry, on the other hand, has termed the hike as `appropriate.' The chamber feels that the hike is unlikely to affect the demand for long-term credit or the long-term fixed rates for corporate borrowing. However, the short-term floating rates of consumer credit are likely to go up, which would have some temporary weakening of credit off-take.

Assocham feels the announcement would have its toll on the overall GDP growth. The chamber points out that though the present GDP growth is led by robust growth in investments, the cost of money would have its impact on the growth scenario, thus posing a possible risk to the vibrant economic growth.

The PHD Chamber of Commerce and Industry has said that there will now be an end to cheap money, as the banks will increase prime lending rates.

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