Contrary to the government's expectations, industry today said the RBI's move to up short-term rates may hinder industrial growth as interest rates are likely to be jacked up.
Industry chambers described hike in short-term borrowing (reverse repo) rate by 50 basis points as "surprising".
"This is a huge surprise as general expectation was at most 25 basis points increase in both rates...The reverse repo increase will incentivise parking of funds by banks with RBI thus reducing lending opportunities to industry," Ficci President Rajan Bharti Mittal said.
Finance Minister Pranab Mukherjee today said the RBI's decision to raise short-term key rates will check inflation without hurting growth.
Mittal, however, said, "the successive and frequent hikes as observed recently run the risk of slowing down Industrial growth, particularly manufacturing sector."
RBI, on July 2, also had increased the two policy rates.
Assocham said that the lending rates may go up.
"The lending rates may go north by 25-50 basis points, making bank's borrowings a little more dearer since repo rate and reverse repo rate have been hiked," Assocham President Swati Piramal said.
The Federation of Indian Export Organisations (FIEO) too expressed apprehension over the upward change in the interest rate regime.
CII said RBI's revised growth forecast at 8.5 per cent for 2010-11 depicts positive business sentiments.
In addition to the monetary interventions being made by RBI to contain inflation, CII Director General Chandrajit Banerjee said the chamber is keen that the supply side issues are addressed effectively to ensure that going forward growth is not affected by supply constraints.
