The Hindu : National : CII opposes interest rate hike to check inflation

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CII opposes interest rate hike to check inflation

Special Correspondent

NEW DELHI: The Confederation of Indian Industry has opposed any move by the Reserve Bank to hike the interest rate to combat inflation and cautioned that it would result in a further fall in industrial output.

India Inc. is apprehending that the government and the Central bank could sacrifice GDP growth to check inflation by favouring a hike in interest rate.

It would hit their profit margins as demand for products would fall due to rising cost.

In their view, the Reserve Bank, which is scheduled to announce its annual monetary policy on April 29, is under pressure to hike interest rates to dampen the inflation, which touched a three-year high of 7 per cent on March 22.

In a statement, then CII said, “With global economic conditions worsening along with increasing price trend of commodities internationally, any move that will choke investments in the economy will add to the declining IIP [industrial production] and prolong a turnaround.”

The apex bank could send a signal that interest rates would be cut to stimulate investments and growth or, in a worst-case scenario, maintain status quo on monetary measures, it said.

Restricting demand

The apex industry body claimed that restricting demand to manage supply-side constraints would not augur well for growth, and pointed out that the current inflation had been a supply side driven phenomenon which needed to be dealt with cautiously so as to not sacrifice growth over price stability.

“Any monetary measures that are aimed at controlling inflation should be judiciously employed so as to not sacrifice growth,” CII counselled.

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