Disappointed by yet another interest rate hike, industry on Tuesday described the Reserve Bank of as being the most 'aggressive' central bank to tame inflation, warning that beyond a point salvaging a downward growth spiral could become difficult.
Industry across different sectors said the 50 basis points increase in the key interest rates was more than expected and would hurt the investment sentiment, resulting in supply constraints.
"With 11 consecutive interest rate increases in the last 15 months, RBI has emerged as the most aggressive central bank which is tasked with containing inflation," industry chamber Confederation of Indian Industry said.
It said at a time when there were indications of a clear slowdown in industrial and economic output, "this is a matter of great concern, since there could be a tipping point beyond which salvaging a downward spiral of growth could be an arduous task."
Federation of Indian Chambers of Commerce and Industry, too, expressed 'major disappointment' with the rate hike, stating that the RBI has decided to sacrifice growth.
"In the trade off between growth and inflation, the RBI has clearly decided to sacrifice economic growth," Ficci said.
The exporting community pointed out that the interest rates for exporters have gone up by more than 71 per cent since March, 2010, if the withdrawal of 2
"How exporters will mange such steep rise and remain competitive?", Federation of Indian Export Organisations president Ramu Deora asked.
During April-June, 2011-12, exports grew by 45.7 per cent to $79 billion.
In the midst of an outcry by the industry, the RBI felt that while there was a moderation in growth, "there is no evidence, as yet, of a sharp or broad-based slowdown".
Industrial growth fell to 5.6 per cent in May this year from 8.5 per cent in the same month last year.
Echoing the view, industry chamber Assocham said the hike in key policy rates by 50 basis points would adversely impact the already falling growth momentum.
"The bigger hike may not deliver the results as anticipated, as the growth will be hit significantly because of the high interest regime and may stoke high inflation," it said.
There is a strong need to move partly from the traditional inflation fighting policies and build up capacity and supplement supply side bottlenecks as a more durable and sustainable measure to tame inflation, it added.
Inflation, currently hovering above 9 per cent, he said, would continue to guide the policy stance in future.
The RBI's next review is scheduled on September 16.
