Apprehending tightening of monetary policy by the Reserve Bank of India in its forthcoming annual credit policy, the industry chamber Assocham said that increasing interest rates will not help in containing inflation.
"The price and supply conditions may get worse if the RBI resorts to raising interest rates to control the spiralling inflation and the move would not only hurt the industry but also the consumers," said an Assocham Business Barometer, a quick survey of CEOs.
The RBI is slated to announce the annual credit policy on April 29 amids apprehension that the central bank would raise the benchmark interest rates to control inflation which has zoomed to 7 per cent, the highest level recorded during the past three years.
About 94 per cent of the 165 CEOs expressed their apprehensions that the RBI may find tightening interest rates as the most likely option to curb the rise in inflation.
But, about 84 per cent said the raising of interest rates or tightening the liquidity through cash reserve ratio would not help as the problem does not lie with the quantum of money floating in the economy. It lies in the shortage of goods, particularly food and metals, due to global scarcity and the attendant speculative activities building around the same.
About 94 per cent of them said the RBI should give adequate weightage to the fact that price rise has been mainly on account of supply crunch and in view of dropping growth rate, tightening monetary policy would not be a wise step.
As many as 76 per cent of the respondents agreed that currently inflation is a global phenomenon and domestic demand has little role in fuelling inflation pressure on the essential commodities.
