India Inc asks central bank for status quo on rates (Lead)

July 28th, 2008 - 8:04 pm ICT by IANS  


Mumbai, July 28 (IANS) India Inc Monday asked the central bank to maintain a status quo on interest rates, a day ahead of its monetary policy review that comes against the backdrop of annual inflation rate ruling at a 13-year high. Reserve Bank of India (RBI) Governor Y.V. Reddy will conduct the first quarter review after hiking interest rates more than a dozen times since 2004 and asking banks to keep more money against deposits to curb liquidity and inflation which is now at 11.89 percent.

Industry has already expressed worries that a further squeeze in liquidity and hike in interest rates could retard growth, play havoc with corporate profits and cause job loss.

“Rise in interest rates would further push costs of production in the short run, leading to higher inflation,” warned the Associated Chambers of Commerce and Industry (Assocham), ahead of the review.

“Present interest rates are at a peak and any further rise in the rates would hamper growth as well as the employment outlook for the economy,” the chamber said after a meeting among its 150 managing committee members here.

In a report on the state of the Indian economy released here Monday, the central bank said some Rs.480 billion ($12 billion) was sucked out of the system by hiking the cash reserve ratio ion a bid to contain inflation.

It also said that the inflationary expectations in the economy were still much higher than the expected levels - in an indication that further tightening of money supply was on the cards.

“This tight monetary policy has not delivered much in terms of a lower rate of inflation, estimated to be 11.89 percent,” said L.K. Malhotra, president of the PHD Chamber.

“Further tightening of the monetary policy will result in reduced industrial investment and infrastructure investments, adversely affecting both upcoming expansion plans and Greenfield projects,” he warned.

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