Industry describes RBI move a 'formidable risk'

A large section of the industry today voiced concern over the cost of funds going up with the Reserve Bank raising policy rates taking a "formidable risk".

"Data on global and domestic growth offer contradictions and a risk-prone future. There is thus a formidable risk in initiating an interest rate hike," Ficci Secretary General Amit Mitra said.

He said the RBI has given into inflationary pressures. "Any instability at this stage could derail the economy from the growth path," he said.

CII too showed concern over the impact of the RBI move on the interest rates. "CII is concerned about the cost of funds for industry, which should remain within a reasonable band for growth and  recovery to become broad-based," chamber Director General Chandrajit Banerjee said.

However, according to Assocham, RBI has moved in a "measured manner".

By increasing the repo and reverse repo rates, the central bank was trying to contain inflation without hurting recovery that, however, appears to be fragile, Assocham President Swati Piramal said.

"RBI has handled the inflationary upswing and maintained liquidity in a very balanced manner," she said.

PHD Chamber agreed with Assocham. "The measure will help in managing inflation without adversely affecting the availability of funds."

The Reserve Bank raised repo and reverse repo rates (the rates at which the RBI lends and borrows short-term funds from commercial banks), by 25 basis points to 5.50 per cent and 4 per cent, respectively.

The move comes weeks ahead of the scheduled policy review by RBI on July 27 and a day after the government announced that food inflation dipped by about a quarter to about 12 per cent. Overall wholesale prices-based inflation too is in double digits.