Business leaders in India expressed alarm on Tuesday after the country's central bank raised interest rates by a larger-than-expected 50 basis points.
The Confederation of Indian Industry umbrella group led the charge following the Reserve Bank of India's rate rise, the 11th in less than 18 months.
CII director-general Chandrajit Banerjee accepted that policymakers were aggressively trying to curb inflation but warned there could be a tipping point beyond which recovering from a downward spiral could prove difficult.
'At a time when data indicates a clear slowdown in industrial output, this (the sharp rate rise) is a matter of great concern,' he said in a statement, repeating industry-wide calls for a pause in monetary tightening.
India's annual industrial output growth slowed in May to 5.6 per cent, its weakest pace in nine months, down from 8.5 per cent expansion a year earlier.
'The current hike coupled with the past actions will have an impact on overall growth,' said Anis Chakravarty, director of global consultants Deloitte, Haskins and Sells.
The RBI's repo rate, at which it lends to commercial banks, stands at 8.0 per cent and the reverse repo — the rate it pays to banks for deposits — is at 7.0 per cent.
Rate-sensitive real estate firms in particular expressed dismay and concern that the rising cost of borrowing will put off home buyers.
'(Tuesday's hike) will make cost of funds expensive for both developers and buyers and make the business environment very complex across industries,' said Pradeep Jain, chairman of Parsvnath Developers.
Jain said property developers had no option but to pass on the burden to buyers.
Source : New Age
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