India Inc on Tuesday expressed apprehensions that the Reserve Bank of India's (RBI) decision to raise short-term lending and borrowing rates could lead to higher interest rates and impact the growth momentum of the economy.
Industry chambers Federation of Indian Chambers of Commerce and Industry (Ficci), Confederation of Indian Industry (CII) and Assocham asked the central bank to strike a good balance between maintaining the country's growth and managing inflation.
"The move could have an impact on interest rates and the cost of borrowing, which in turn could affect areas which are still to pick up and come full stream," Ficci Secretary General Amit Mitra said.
Echoing Mitra, Assocham President Swati Piramal said the policy rate increase is likely to increase lending as well as deposit rates of banks immediately.
However, CII was of the opinion the banks would not immediately raise the lending rates.
"We are reassured by the Bank's statement that it is unlikely to increase rates again in the near future," CII Director General Chandrajeet Banerjee said.
In RBI's mid-year policy review, it announced an increase of 25 basis points in key short-term lending (repo) and borrowing (reverse repo) rates to 6.25 per cent and 5.25 per cent, respectively, to tame high inflation.
Headline inflation stood at 8.6 per cent for August, while the food inflation at an elevated 13.75 per cent for the week ended October 16.
The RBI retains GDP growth forecast at 8.5 per cent for 2010-11. In the first quarter of 2010-11, the economy grew at 8.8 per cent.
Ficci said the policymakers' focus be on extending growth which would lead to greater employment.