Ahead of the Reserve Bank of India's mid-year credit policy review on Tuesday, a senior Plan panel official said on Monday the interest rate hike will not have any bearing on either inflation or economic growth.
"On inflation, it (rate hike by RBI) will not have much impact in the short-term. Rate hikes are aimed a brining down inflationary pressures in the long-term," Planning Commission Principal Adviser Pronab Sen said when asked about impact of possible hike in key rates by RBI on Tuesday.
As regards the impact of interest rate hike on growth, he said, it will have 'no impact' on economic growth which is likely to be in excess of 8 per cent in the current fiscal.
RBI in its mid-year review of the monetary policy is expected to raise its key interest rate by 25 basis point to contain inflation which is hovering near the double-digit mark.
The central bank had raised key policy rates by 12 times since March 2010 to check inflation.
On growth prospects for 2011-12, Sen said, "I am hopeful of 8 per cent plus economic growth this fiscal."
While the wholesale price index for September was at 9.72 per cent, the latest food inflation was 10.60 for week ended October 8.
On the other hand, industrial growth figures are discouraging at 4.1 per cent for August.
During the first quarter of the current fiscal, the economy grew at 7.7 per cent, the lowest in the last several quarters.
The growth during the remaining quarters will have to be higher if the country is to achieve the growth rate of over 8 per cent.
The growth rate by 8.5 per cent during 2010-11.
Sen
The Reserve Bank said the investment demand is softening as a result of tightening of the monetary policy, deteriorating business confidence and project executions facing hindrances among other things.
While growth in the current fiscal is likely to moderate to below trend, agriculture prospects remain encouraging with
the likelihood of a record kharif crop.
"However, moderation is visible in industrial activity and some services," the central bank said.
The country's industrial output as measured on Index of Industrial Production grew by a dismal 4.1 per cent in
August (latest data) as high interest rates and gloomy global indicators weighed against the factory output.
In addition to domestic factors, the RBI said global factors may slow down growth.
"With the increasing linkage of domestic industrial growth with global industrial cycle, some further moderation is likely ahead. . ."
It said capacity constraints seem to be easing in some manufacturing segments, especially cement, fertilisers and steel.
Besides, construction activity has slowed and leading indicators suggest that going forward, "services growth may slightly weaken".
According to the the RBI, the planned corporate fixed investment in new projects declined significantly since the second half of 2010-11 and has stayed low in the April-June period of 2011-12.
"Consequently, the pipeline of investment is likely to shrink, putting growth in 2012-13 at risk," it said.
