The Reserve Bank of India (RBI) raised interest rates on Thursday for the 10th time since March 2010, keeping up its fight against inflation even as growth slows in Asia's third-largest economy.
The RBI raised the repo rate at which it lends to banks by 25 basis points to 7.5%, in line with expectations in a recent Reuters poll.
Following are reactions of industry officials:
HM Bharuka, managing director, Kansai Nerolac
"The paints industry is already seeing moderation in demand and the continuous increase in rates will hurt us further. We are expecting tightening of interest rates to dampen demand from auto and housing sectors."
Anant Bajaj, exec. director, Bajaj Electricals
"The rate hike was very much on the expected lines. I don't see demand will drop any time soon for essential consumer products like kitchenware, irons, water filters, lights and fans. But if you are buying Plasma TV or HDTV it will have an impact, it will probably be delayed by the people."
Bharat Mody, CFO, Ackruti City
"Considering the secanario of the past six months, wherein interest rates were hiked many times, the demand in the real estate sector would continue at the same pace and there wouldn't be an immediate impact on demand or prices."
Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong
"The increase confirms determination of policymakers to continue to fight stubbornly high inflation. We expect at least one more hike this year, in Q3, but there is a possibility of more if inflation doesn't stabilise by then.
"The tightening will reduce GDP growth to 7.4% this year. We see little market impact given that the move had been priced in.
"The RBI statement is hawkish. The comments are likely to keep short INR OIS rates high but may lead to curve flattening as growth slowdown will bring long rates lower. Little impact on the FX seen."
Rajrishi Singhal, head, policy and research, Dhanlaxmi Bank
"The policy tone indicates that RBI may come through with at least two more rate hikes of 25 bps each before pressing the pause button. This is evident from the central bank's guidance that it will persist with its anti-inflationary stance, especially since it feels that growth has not been adversely affected so far.
"What's even more ominous is the RBI statement that it feels that the April and May inflation numbers are likely to be higher than what's been announced. The other area of concern is the level of inflation in non-food manufactured goods, which is way above RBI's comfort level of 4%. Keeping all this in mind, it seems another two rate hikes of 25 bps each seems most likely."
Sudhakar Shanbhag, chief investment officer, Kotak Mahindra Old Mutual Life Insurance Limited
"The increase in repo rate by 25 bps each is largely in line with the market expectation. There has been an effective increase of 425bps from a low of 3.25% (reverse repo rate) in Q1 of CY10 to the current repo rate of 7.50% (current operative rate). The latest readings on inflation and IIP are making the balancing act between growth and inflation more challenging.
"The RBI has chosen inflation control as its main focus at this point of time and will most probably continue on the rate tightening mode until clear signs of inflation control are in sight. Food inflation is again showing signs of inching up adding to the core inflation pressures we have observed lately. A sign of slowdown in global recovery is something they will continue to keep a watch on."
Moses Harding, head, Global Markets Group, IndusInd Bank
"The macro economic scenario was getting complex on run up to monetary policy. The economy is facing uptrend in headline inflation and downtrend in growth momentum. The risk is that of spread of inflationary pressures from food to fuel to core despite absence of external demand for India’s goods and services. There is extreme pressure on RBI to stay hawkish on its monetary policy by delivering more rate hikes and to maintain tight system liquidity.
"RBI needs to take into account the pipeline expectations such as good monsoon, reversal in commodity prices and base effect impact on headline WPI inflation; all of which would arrest further pressure on inflation. On the other hand, there is need to keep the investor appetite intact through FII and FDI investments for overall economic prosperity and for smooth sailing of PSU disinvestment plans; bearish set up in the stock market may also lead to pull out of hot money flows to bring in exchange rate pressure.
"Given all these complexities and resultant counter active play, RBI did not chose to surprise the market and delivered the 25bps rate hike with cautious undertone."
