RBI's move will slow down economic growth: IMC

Mumbai, Jul 29 (UNI) The Indian Merchants' Chamber (IMC) today said to contain inflation, the RBI has sought to ruthlessly curb expansion of liquidity by hiking repo rate by 50 basis points (BPS) and CRR by 25 BPS -- both to the level of 9 pc each, the highest in the past eight years.

Reacting to the announcement of Reserve Bank of India's (RBI) credit policy here, the apex bank has increased the CRR by 150 basis points this year, while the repo has gone up by 125 basis points, including the latest announcements, according to a release by IMC President M N Chaini.

The Chamber President has apprehended that this harsh measure could raise the PLR by at least 0.50 per cent, thereby making the interest rate on bank credit beyond the reach of all productive sectors like industries and services.

Mr Chaini said the RBI has directed banks to review their business strategies with a view to ensure that long-term financing by them would not only be viable but also reasonably profitable to them. For strictly enforcing this directive, the RBI has decided to put all the major banks under its scanner, he said.

However, any tampering with the interest rates at the current juncture is bound to derail India Inc's plans for industrial expansion, he said.

The IMC considers that RBI's decision could have a detrimental impact on investments. To make the monetary measures to be effective, it is essential that fiscal consolidation should be given a push, which has received a low priority in recent times.

Turning to the private sector manufacturing companies, Mr Chaini pointed out that the RBI's macroeconomic and monetary development report, released a day before the first quarter credit policy review, painted a gloomy picture.

''Fewer companies expect the overall situation to improve in the July-September quarter. Most companies expect an increase in raw material prices, and the increased production cost is expected to be adjusted by keeping inventory levels (both raw material and finished goods) at 'below average' and by increasing selling prices,'' he added.

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