Latest rate hike a dampener for India Inc

MUMBAI/CHENNAI: India Inc, which was expecting a pause in the upward revision of the short-term policy rates by the Reserve Bank of India ( RBI), feels the latest round of rate hike could impede growth, even though the liquidity situation has improved.

“Today’s RBI action of raising short-term rates by 25 basis points each does come as a bit of a dampener for the Indian industry, which was hoping that the tightening monetary policy regime was nearing its end,” said Harsh Goenka, chairman , RPG Enterprises.

Since March this year, the RBI has hiked the repo and reverse repo rates by 150 and 200 basis points, respectively , to contain inflationary expectations.

“If at all banks choose to hike the lending rates, it may impact investment decisions , more so in the infrastructure segment,” said V Ashok, group CFO, Essar. “Given the current liquidity position and sluggish credit offtake, the chances of banks increasing lending rates seem slim,” Ashok said.

The comforting factor for the corporates is that the RBI has indicated that this revision will mark the end of the current rate hike cycle.

According to R Seshasayee , managing director, Ashok Leyland, there will be no immediate impact of the rate hike because credit availability has been good. “But if RBI’s action results in higher interest rates at the traded level, it could dampen sentiments,” he said.

Michael Boneham, president & managing director, Ford India, said he would make an assessment in the next couple of months as to how the corporates would be impacted if banks raise their lending rates.

As for the realty sector, developers felt that borrowing rates would go up for them and consumers. “The overall policy is designed to check the creation of a pricing bubble in the market. The loan value restriction has been brought down to 80%, which will certainly check flow of funds in market, thereby, giving bankers an option not to increase the loan rates,” said Pradeep Jain, chairman, Parsvnath Developers.