Yesterday's “unexpected” 50-basis point rise in repo rates by the Reserve Bank of India makes the industry across all spectrums nervous. Market analysts fear slowdown in growth, especially in sectors like Real Estate, automobiles and infrastructure and the companies from these sectors are heavily criticizing RBI’s step on increasing interest rate at this point of time.
While real estate companies fear that rise in the cost of funds would affect their projects, auto manufacturers are panic as sales of vehicles would heavily fall down. Infrastructure companies scared of falling shortage of funds and implications on new projects and as it is surely home loan rates are bound to go up. Industry is complained that already interest rates are in the range of 11.5-12% for long-term financing and there was no need for RBI to increase the rate at this moment.
Chambers of Commerce severely criticized RBI on rise of interest rate, “It’s clear RBI had decided to sacrifice growth to tame inflation, with 11 consecutive interest rate increases in the past 15 months.”
Industry Pundits are now saying that RBI’s hike of interest rates may not help it to curb inflation rather it would create backfire, with growth slowing considerably. This hike may not deliver the results as expected but surely growth will be hit significantly due to the high-interest system. Already growth momentum is under severe pressure due to inflation and this step may raise more difficulties to even achieve projected growth rate of 8% for 2011-12.
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