RBI rate hike reflects uptick in credit demand: Industry

The rate hike by RBI reflects an uptick in credit demand, the industry said today, even as it urged the central bank not to take growth for granted.

The Reserve Bank's Monetary Policy Committee raised the benchmark interest rate by 25 basis points for the second time in two months on inflationary concerns.

The repo rate, at which the central bank lends to other banks, now stands at 6.50 per cent.

"What needs to be ensured is that the private sector should not be crowded out for raising resources from the market," Assocham President Sandeep Jajodia said.

Mahindra Mutual Fund MD and CEO Ashutosh Bishnoi said the RBI's action reflects an uptick in credit demand and the underlying economic growth that is driving it.

"With the rate cycle on the upswing, investment opportunities are coming up in the form of new debt funds.

"In this rate regime, any new investments made in the debt markets are likely to perform well over the next couple of years," Bishnoi said.

Jajodia observed that the Monetary Policy Committee (MPC) should not take growth for granted, especially when the twin balance sheet problem still persists and a large part of corporate India continues to reel under heavy debt.

The six-member MPC, headed by RBI Governor Urjit Patel, kept its stance as 'neutral'.

For July-September, it pegged CPI-based retail inflation at 4.2 per cent which it saw firming up to 4.8 per cent in the second half of the current fiscal.

The projected inflation rate is above its targeted comfort level of 4 per cent.

The RBI kept the GDP forecast for the current fiscal unchanged at 7.4 per cent and saw it at 7.5-7.6 per cent in the second half of the current fiscal.