Rate hikes may not help tame inflation: India Inc

India Inc today said the RBI's 12th rate hike since March 2010 is unlikely to tame rising inflation and could instead lead to a further slowdown in investments and industrial growth.

"Even as RBI justifies this rate hike to dampen inflationary expectations, it is difficult to fathom that this will be achieved when a cumulative rate hike of 325 basis points since March 2010 could not achieve this objective," Ficci Secretary General Rajiv Kumar said.

Kumar added, it is ironic that RBI is now clearly banking on inflation rates to start declining towards the latter part of the current fiscal, based purely on base effect.

Industry body Assocham expressed a similar view that successive rate hikes by the central bank have not been able to control rising inflation.

RBI has followed hawkish monetary policy in the past 18 months to tame high inflation, which was still ruling at about 9.8% in August.

The Reserve Bank today raised the short-term lending (repo) rate by 25 basis points to 8.25% and the short-term borrowing (reverse repo) rate will move up by a similar percentage point to 7.25%.

CII said there is an urgent action required to step up the growth momentum, especially in the manufacturing sector.

Growth in industrial production slipped to a 21-month low of 3.3% in July. The country's economic growth also moderated to 7.7% during the April-June quarter this fiscal, the slowest growth in six quarters.

Referring to economic slowdown in the US and European economies, Ficci said RBI has made a reference to the worsening global growth, but surprisingly went ahead with a rate hike citing a jump in the August inflation rate to 9.8%, from 9.2% in July.

The industry chambers are also worried about increase in home loans and other related sectors that would slow down consumption, further hitting the growth.

Global economic uncertainties and high interest rate environment is likely to put brakes on new investments and put corporate India in a difficult position to maintain the growth momentum, Assocham Secretary General D S Rawat said.