New Delhi: India’s top CEOs, chairman and managing directors, especially from the real estate, automobile, finance and banking are “jittery and a worried lot” about further tightening of money supply in the Reserve Bank’s (RBI) Annual Monetary Policy to be announced on Tuesday.
According to an Assocham survey, CEOs feel that RBI would take further measures to tighten the monetary flow as the credit growth continues to remain much above 20% desired by the central bank.
The company heads in real estates, housing finance and automobiles remain anxious about the possibility of another hike in the cash reserve ratio and repo rates (the rates at RBI lends to the commercial banks).
A vast majority of 85% respondents feels that RBI would tighten the flow of credit in real estates as this sector has witnessed maximum increase in prices. Other sectors such as construction, automobiles and banks would also be affected by the hike in interest rates, the survey said.
Sixty percent of the 150 corporate heads and economists across the different sector were not sure whether the interest rates have peaked and RBI would not be tempted to further tighten the money supply.
However, 40% respondents felt that interest has already touched a peak.
The survey pointed out that 74% of the respondents were of opinion that tight monetary policy would affect the small and medium enterprises more than the large business houses.
India is attracting huge capital flows both in the stock market and in the form of foreign direct investment.
“RBI faces a unique problem. While on the one hand, it tries to suck the liquidity through holding CRR and repo rate, at the same time it is faced with fresh inflows negating the tough measures,” Assocham President Venugopal Dhoot said.
The survey pointed out that 92% of the business leaders were convinced that RBI policies would hurt the GDP growth rate in 2007-08 fiscal.
However, 67% of them are bullish on economic growth and expect economy to grow between 8.5% to 8.7% in the current fiscal, Assocham said.
Industry body PHDCCI has also asked the RBI to reduce CRR from 6.5% to 3% in a phased manner to improve the liquidity in the system.
“The Prime Lending Rate has gone up to 13.5%. This is quiet high when compared to LIBOR (London Interbank offer rate),” PHDCCI president Sanjay Bhatia said.
He said the bank should charge a spread of not more than 2% between the deposit and lending rates.
The monetary policy stance should be to maintain adequate liquidity at affordable cost, the chamber said.