New Delhi: Monetary measures announced by the Reserve Bank on 29 July to contain surging inflation may have adverse implications for investment and growth, feel economists.
“RBI will achieve objective of inflation control as higher EMIs on housing loans etc, will reduce the level of demand, especially consumption demand,” Icrier Director and CEO Rajiv Kumar said.
“The decision will also have a negative impact on investment. Let us hope that industry will absorb the impact and not cut back on investment plan as the long-term growth story remains intact,” he added.
As part of the quarterly review of the monetary policy, the RBI increased the short-term lending (Repo) rate by 50 basis points and increased the mandatory deposit of the banks with the central bank (CRR) by 25 basis points. Both the Repo and CRR rates have been raised to 9%.
RBI has also lowered the economic growth projection for the current fiscal to 8% from 8-8.5% projected earlier and enhanced the inflation rate target to 7% from 5.5%.
Kumar also warned that to make the monetary measures work and have impact on the economy, the government control the fiscal deficit “even if it means going slow on implementation of the Sixth Pay Commission recommendations.”
Member of the Prime Minister’s Economic Advisory Council (EAC) Saumitra Chaudhuri opined that under the current circumstances, “it is more important to look at inflation than the growth scenario.”
He further said: “This year is not about the usual business. There are many other things which could effect growth but inflation has to be the main focus of this rate hike.”