As widely expected, the Reserve Bank of India increased the repo rate by 25 basis points on Tuesday. However, appreciating RBI's statement of intent on ruling out further rate hikes, chamber bodies on Tuesday expressed much relief.
“We would like to see intervention by RBI in the currency exchange rate since a weak rupee in a high inflation situation is proving to be extremely detrimental,” said Mr Chandrajit Banerjee, Director-General, Confederation of Indian Industry (CII).
FICCI, too, urged the RBI to prevent rapid depreciation of the rupee. According to FICCI, the RBI estimate of 7 per cent inflation rate at the end of March 2012 could possibly be an underestimation as the higher base effect is likely to further bring down the inflation.
“The RBI Governor has done well to point out that any further increase in government borrowing will neither augur well for inflation nor for growth in private investments,” FICCI said in a statement.
The move to deregulate saving bank deposit rates was welcomed by chambers who felt that more competition would lead to increased product innovations across banks and there would be more effective transmission of monetary policy impulses.
“On the flip side, however, it remains to be seen whether the smaller banks are able to effectively compete in the market with larger banks after this move,” FICCI said.
Expressing concern over yet another hike, Mr Dilip Modi, President, Assocham, said, “Depreciating rupee, economy showing signs of slowdown and rising inflation are indeed worrying, but structural imbalances in agriculture, infrastructure capacity bottlenecks, distorted administered prices of several key commodities and pace of fiscal consolidation left little room for the RBI but to increase interest rates.”
DEVELOPERS' REACTION MIXED
Mr Pradeep Jain, Chairman of Confederation of Real Estate Developers' Association of India, noted that this was the 13 th instance of rate action over the last 20 months and still “the target with which they are increased is yet to be achieved”.
“It is certainly out of our understanding why the apex bank is not suggesting the supply side route to tame inflation instead of hiking rates,” said Mr Jain, who is also Chairman of Parsvnath Developers.
The RBI's move has placed the real estate sector in a “sorry situation”. “It is a vicious circle of higher input cost, higher borrowing cost and higher property prices. We are bound to pass on the increased pricing to our customers,” he pointed out.
Mr Gaurav Mittal, Managing Director of CHD Developers, said the rate hikes were fuelling negative sentiments in the market. “Certain segments of the real estate market, especially in the luxury segment, has been slow. However, the mid-segment residential sector is strong and will continue to show growth in the time to come,” he said.