INDUSTRY VIEW: RBI raises key rates


MSN News | Reuters | 27/07/2010

The Reserve Bank of India on Tuesday raised interest rates more forcefully than expected in the face of inflation that has held stubbornly above 10 per cent for the past five months. The RBI lifted the repo rate, at which it lends to banks, by 25 basis points to 5.75 per cent, in line with expectations, but raised the reverse repo rate, at which it absorbs excess cash from the system, by 50 basis points to 4.50 per cent. Following are the views of industry officials to the policy.

PRAMOD MENON, CHIEF FINANCIAL OFFICER, JSW ENERGY

"The rate hike is well warranted and there should not be any problem until the rate of economic growth continues to be robust. There will be a slight impact on interest rates, but I believe, everybody is prepared for it."

SANTOSH SINGHI, CFO, AMTEK AUTO LTD

"The rates will firm up. This may lead to a liquidity crunch in domestic market in the coming months as many large projects are still rupee-funded. I do not think the OEMs (original equipment makers) will accept an increase in component prices because of a rise in rates. The only way we can compensate is increasing our volumes and scale of operations".

VIRENDRA MHAISKAR, CMD, IRB INFRASTRUCTURE DEVELOPERS

"In our case we have tied up the funds with a fixed rate for next three years, anticipating the tightening. We won’t be impacted at all. For the infrastructure (sector), it’s a counter-productive move on a long-term basis if the interest rates are hiked for the growth sector."

RUPEN PATEL, MANAGING DIRECTOR, PATEL ENGINEERING

"RBI has increased reverse repo by 50 basis points and repo rate by 25 basis points. CRR has remained unchanged at 6 per cent. Market anticipated much more tightening than what has been announced. As such we feel no negative impact on our sector for the action taken by RBI." 

ARVIND PAREKH, DIRECTOR, JINDAL STAINLESS

"It looks like RBI is trying to get ahead of the curve. But overall I think interest rates should not move up at least for 1-2 quarters more. I do not think this will have a major impact on demand as the increase was more or less in line. Production costs should stay as they are at least for couple of months."

J C SHARMA, MANAGING DIRECTOR, SOBHA DEVELOPERS

"CRR unchanged is a positive step. The real estate sector, in our view, hopefully, would continue to enjoy the current interest rates, which in an inflationary environment can be considered positive."

R.RAMAKRISHNAN, EXECUTIVE DIRECTOR, BAJAJ ELECTRICALS

"The decision will impact the lending done by banks as the RBI is planning to suck liquidity. No change in CRR is a welcome move but the repo and reverse repo should not have been changed. Liquidity pressure does not affect the common man on the street but it affects corporates and consumption of products. With the festive season coming up, the rates should have been left untouched."

RAMESH IYER, MD, MAHINDRA & MAHINDRA FIN SERVICES

"I am not able to see any impact on auto demand, it is more or less neutral…It is not going to impact the borrowing costs in a big way. I don’t think banks will push up the rates to the consumers at this level, so there will not be much of an impact on consumer sentiment and demand thereafter for automobiles."

M.M. MIYAJIWALA, CHIEF FINANCIAL OFFICER, VOLTAS

"This rate hike will not significantly impact consumer sentiment and that is what is most critical for consumer durables. If, however, this trend of rate hikes continues, then maybe after 6 months, the interest rates will be so high that people will think before buying durables on an installment basis. But right now, I don’t think there will be a major impact on consumer demand."

ANIL SUREKA, EXECUTIVE DIRECTOR, FINANCE, ISPAT IND

"Initially, there will be no impact since liquidity is still there in the market. But in future, there will be some impact in terms of price rise. Starting third quarter, the interest rates will go up, pushing up the costs."

PABAN K KATAKY, DIRECTOR, EXIDE INDUSTRIES LTD

"This will certainly have some amount of impact, but this will not make a major dent on consumer sentiment, because demand for automobiles is very robust at the moment. The components industry will continue to gear up capacity as planned."

SUSHIL MAROO, DIRECTOR, JINDAL STEEL & POWER

"The RBI action will further increase our already high input cost. The introduction of base rate has already increased the cost of medium- and short-term funding and now with RBI action even medium and long-term funding will be expensive. This will make steel more expensive."

M.S.UNNIKRISHNAN, MANAGING DIRECTOR, THERMAX

"From the industry point of view, it is not going to make a substantial difference at this point with the buoyancy we are seeing in the market. Because of the positivity of market, I don’t think this increase by 25 basis points in repo and 50 basis points in reverse repo is going to impact our industry. Credit availability in the market will continue at the current levels."

BACKGROUND:

  • Wholesale price index inflation in India was in double-digits for five consecutive months through June, and India’s chief statistician said on Monday that the figure for July was likely to be 11 per cent.
  • Inflation which started with high food prices due to last summer’s poor monsoon has spread more broadly to the economy.
  • Economists polled last week by Reuters mostly expected the central bank to lift rates by 25 basis points at each of its quarterly policy reviews, starting with Tuesday’s, for the remainder of the fiscal year that ends in March 2011.
  • India’s economy is expected to grow by about 8.5 per cent in the current fiscal year.
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