Reserve Bank of India’s announcement on Tuesday hiking the Repo rate by 25 basis points, the second increase in consecutive months, has come as a rude shock for the entrepreneurs in Tirupur knitwear cluster as well as to the retail loan seekers.
“This step will further weaken the investment momentum in the garment production hubs like Tirupur where the entrepreneurs are already reeling under the stress caused due to high cost of capital. Consequent to the neck-to-neck increases in the Repo rate (the rate at which RBI lends to commercial banks), the consumer loans are going to get dearer which in turn, will pause the capacity expansion programmes in small and medium scale enterprises,” G. R. Senthilvel, secretary of Tirupur Exporters and Manufacturers Association (TEAMA), told The Hindu .
On the day, the RBI increased the repo rate under the liquidity adjustment facility (LAF) from 7.5 per cent to 7.75 per cent with immediate effect and justified the act as a step intended to curb mounting inflationary pressures.
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However, the industry ridiculed the apex bank’s justification and pointed out that inflation as well as excess liquidity in the Indian market was primarily due to the black money in circulation. ‘The RBI officials are repeating the same mistakes committed between March 19, 2010, and October 25, 2011, when they tampered with the repo rate by increasing it on as many as 13 times in 18 months to tackle the ‘inflation’, which did not yield any result,” S. Dhananjayan, senior member of Institute of Chartered Accountants of India, pointed out. A major worry expressed by the entrepreneurs was about the pointers in the second quarter review of the monetary policy by the RBI, held on the day, that the short-term bank rates could be revised upward again if inflation persists.