Rate hikes to weaken growth, says India Inc

The industry has said the 25 basis point rate hike by the Reserve Bank of India will further weaken economic growth, but expressed relief at the central bank's hinting at a pause in pushing up the lending rates.

The industry welcomed the RBI move to deregulate savings bank interest rates, a step which lenders said could fetch better returns for depositors as competition will intensify.

"Yet another interest rate hike (effected) by the RBI will further weaken economic growth and impact all other indicators," industry chamber Assocham president Dilip Modi said on Tuesday.

However, the central bank has hinted that it may not hike the short term policy rates further.

"One of the main positives of the RBI policy is the indication that it will not raise policy rates further. . . . The second positive is the savings

rate deregulation which will give banks more freedom," Confederation of Indian Industry director general Chandrajit Banerjee said.

Expressing similar views, Federation of Indian Chambers of Commerce and Industry secretary general Rajiv Kumar said, "There was a definite statement of intent from RBI on ruling out further rate increases in December.

"The deregulation of saving bank deposit rate is a welcome move and is likely to lead to increased product innovations across banks through more competition."

Ficci, however, expressed concern as to whether smaller banks would be able to compete in the market with the larger banks after this move.

RBI on Tuesday hiked interest rates by 25 basis points. With this, the short term lending (repo) and borrowing (reverse-repo) rate now stand at 8.5 per cent and 7.5 per cent respectively.

This is the 13th hike in a span of 20 months to tame inflation.