New Delhi: The industry body, the Associated Chambers of Commerce and Industry (Assocham), is lobbying India’s central bank, the Reserve Bank Of India (RBI), to temper the pace of successive hikes in a key lending rate and the balance that banks need to maintain with it, so businesses won’t be hurt by the resultant higher cost of borrowings.
The chamber met RBI governor Y.V. Reddy on 11 April, to lobby for a reasonable time gap between the hikes, part of the central bank’s efforts to tighten money supply and, consequently, fight inflation.
“The industry needs time to absorb the increment in cash reserve ratio. We are worried that RBI has hiked the cash reserve ratio almost every few weeks without giving the industry time to recover,” said D.S. Rawat, secretary general of Assocham.
To control inflation, which reached a two-year high in January, the central bank announced an increase in the cash reserve ratio (CRR), which is the proportion of deposits commercial banks must hold with it to 6% on 14 February and to 6.5% on 30 March. And in 2006-07, RBI hiked a key lending rate five times.
Assocham contends that the frequent hikes and the consequent credit tightening will discourage investment and might possibly lead to a slowdown in economic growth. “The hikes will naturally lead to banks increasing lending rates, which will have an adverse impact on investment,” said Rawat.
The industry body has attributed the current increase in inflation to a shortage in supply of commodities.