NEW DELHI: Expecting the RBI to hike interest rates, India Inc has warned that any further hike in interest rates would “destabilise” industrial growth and weaken the economy.
“Over the last two years, food inflation has remained at elevated levels. We have seen the central bank taking swift measures, with key policy rates being hiked nine times since March 2010, to rein in inflationary pressures. However, food inflation has proved to be stubbornly insensitive to any such moves. As this is largely a problem arising out of demand supply mismatch, any move to control such inflation through monetary moves will been futile. On the contrary, aggressive monetary tightening is having an adverse bearing on economic and industrial growth,” Udayan Bose, Chairman of the Corporate Finance Committee of FICCI said in his letter to the RBI Governor.
Bose further said, “GDP growth in the fourth quarter of 2010-11 confirms the slowdown in sectors such as manufacturing and mining. Another worrisome trend is the slowdown in growth of Gross Fixed Capital Formation. The pace of investments, as you would agree, is a key determining factor for overall growth, and once it loses momentum, it is difficult to bring it back.”