Amid expectations of a tight monetary policy by the Reserve Bank later this month, the industry on Wednesday cautioned it against hiking lending rates as it will hurt the growth momentum.

“An anti-inflationary monetary package that does not take into consideration the issues of commodity price rise, potential fuel price increase, and the signs of slowing down of the consumer goods sector will impact the growth momentum,” leading chamber FICCI said here.

The wholesale price-based inflation inched up to 10.55 per cent in June, from 10.16 per cent in May. Economists are predicting another 25 basis points hike in policy rate by the RBI in its July 27 monetary policy review.

“The anti-inflationary measures adopted by the Reserve Bank are expected to result in lending rates rising further,” industry body ASSOCHAM said, adding any premature withdrawal of the stimulus measures and anti-inflationary measures will push up cost of credit, which can pose a problem for growth.

“This dual impact is bound to have negative implications on the profitability of private corporates. Coupled with a fall in the private final consumption expenditure, businesses will not be able to meet higher operational costs through proportionate adjustment of their sale prices,” ASSOCHAM said.

A comparative analysis of the industrial sectors by ASSOCHAM reveals that intermediate goods, capital goods and infrastructure sectors are likely to feel the heat of relatively stronger inflationary pressures compared to consumer durables, consumer non-durables and services sectors.

The effect of the fuel price hike was quite evident in the June inflation figures, as kerosene prices rose by nine per cent, LPG three per cent, petrol two per cent and diesel one per cent in June.


Formula to revise petrol prices soonJuly 15, 2010

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