In a quick survey done by Assocham Business barometer (ABB) of 120 CEOs and Managing Directors, about 107 of them expressed their apprehension of rate increase by the apex bank. ''The industry heads, already wary of the rising raw material and wage cost, stated that any further rise in the borrowing cost would shake the business confidence,'' Mr Jindal said. Two months back, the RBI had hiked cash reserve ratio (CRR) by 50 basis points to eight per cent to impound Rs 18,500-crore liquidity from the banking system as a measure to combat the rising inflation. The hike was in two phases, the first on April 26 and the second on May 10.
However, there was a lack of consensus among the ABB respondents as to the choice of instrument, which the central bank may adopt to bring into the affect of money tightening. Fifty two per cent of the CEOs felt that the RBI would continue its previous stance of raising the CRR in view of the slowdown that the economy is witnessing, while the rest believed that the central bank's move may be harsher this time, with 50 to 75 basis points rise in the repo rate.
About 76 per cent of corporate heads expect inflation rate to move northwards within the range of 9-9.5 per cent level by the mid-June 2008. ''This is majorly in view of the fuel price hike measures taken by the government, as the dependent industries may witness a trickle down effect in their rising input costs,'' revealed by the survey.
Around 63 per cent of the CEOs felt that sectors such as power, steel, cement, fertilisers, transportation and FMCG are already in line to increase the cost of their products as higher crude oil prices are expected to have a cascading effect on the main inputs used by these industries. These industries will pass the price hike to the consumers.
This will lead to higher inflationary levels, which is already hovering above eight per cent on the weekly basis, much higher, than the government's comfort zone, said the survey.
Seventy nine per cent of the business heads are of the view that with the crude oil price touching 135 dollars a barrel, the inflationary pressure is likely to continue with no room left for the RBI but to opt for interest rates hike up to 50-75 basis points.
The Indian economy is also finding it difficult to insulate itself from global pressures, thus the government's fiscal, monetary and administrative steps need execution to maintain the economic buoyancy.