Interest rate hike to put pressure on industrial growth

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New Delhi, Jun 25 (UNI) With the Reserve Bank of India hiking the cash reserve ratio (CRR) and the repo rate by another 50 basis points, the industry expects pressure to mount as interest rates rise but remained confident that India Inc's expansion plans would not hit a roadblock.

''The steps taken by the Apex bank would affect the expansion plans but India Inc's global acquisition plans will continue as they raise funds mainly from abroad,'' Assocham President Sajjan Jindal said.

Though these measures would create liquidity crunch in markets and hike interest rates, yet the pinch will be less painful than the double digit inflation, which is hurting the poor, he added.

The implications of increased rates would prove costlier for the industry as interest rates are bound to go up.

RBI has announced a hike in CRR rate for the fourth time this year. On June 11, RBI raised the key lending rate by a quarter of a percentage point to 8 per cent.

In April, it raised banks' CRR by 75 basis points in stages, with a view to check the rising inflation and dampen consumer demand.

The latest hike has raised the key lending rate by half a percentage point to 8.5 per cent, while CRR will be increased to 8.75 per cent in two stages on July 5 and July 19.

The two phase CRR hike is expected to suck out an estimated Rs 19,000 crore of credit from the system, thereby tightening liquidity. But, the worst affected will be the small and medium scale sector.

''The industry expects the growth in the manufacturing sector, which dropped to 9.1 per cent during 2007-08 as compared to 12.2 per cent during FY07, to dip further as demand decreases on account of expected higher interest rates on loans for automobiles and consumer durables,'' Ficci said.

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