Amid fears of a steep hike in the key policy rates by Reserve Bank tomorrow to tame runaway inflation, industry body Assocham today said the central bank should resist from aggressive squeezing of money supply.
Assocham said the Reserve Bank should rather go in for a gradual rate hike to minimise the impact on the demand- driven growth. The RBI should hike its key instruments by 25 basis points to suck a part of the excess liquidity, it added.
After the annual monetary policy tomorrow, the central bank should not raise the key rates till the next quarter as inflation may come down by that time with the arrival of monsoon that will also lead to a better farm output.
Monthly inflation for March remained steady at 9.9 per cent, a little below the double-digit figure expected by the markets and experts, but well above the RBI forecast of 8.5 per cent. This may be one of the crucial concerns for RBI, the chamber noted.
The RBI is also concerned about rising inflation among the manufactured goods which reflects the demand pick-up in the economy. The reserve rates may also see a rise of 25 basis points, Assocham said.
Higher input costs and rising prices of most of manufactured goods have added another dimension to the increasing inflationary pressure in the economy. With prices of food items like sugar and edible oils easing, the downside has been balanced out by rising prices of manufactured items, it pointed out.
The realty sector has seen an increase in rates despite lower demand, the chamber said, adding the exports sector has also shown positive growth but still needs support and sops to spur domestic production.