On the eve of credit policy review by the Reserve Bank of India (RBI), industry body Ficci today warned that any further hike in interest rates would "destabilise" industrial growth and weaken the economy.
In a letter to RBI Governor D Subbarao, Chairman of Ficci Finance Committee Udayan Bose has said that recent evidence of slowdown in cement sales, dip in steel imports and increasing inventories of automobile, have all created a negative perception.
With a "depressed" confidence level, the Corporate India is looking for clear direction and signposts that highlight growth measures.
While successive interest rate hikes by the RBI since March 2010, have not been able to control inflation, "aggressive monetary tightening is having an adverse bearing on economic and industrial growth of the country".
Another worrisome trend is the slowdown in growth of gross fixed capital formation. "The pace of investments is a key determining factor for overall growth, and once it loses momentum, it is difficult to bring it back," Bose said.
Ficci's comments come in the wake of expectations of a rate hike by the RBI tomorrow, for the tenth time in the last 15 months, without much success in taming a stubbornly high inflation, recorded at 9.06% in May.