Mar 17, 2008

High inflation would not allow RBI to cut rates: CEOs

Expressing concern at inflation rate touching a nine-month high of 5.11 per cent, India Inc on Sunday said the price rise would not let RBI slash interest rates even though such a step is required to give a fillip to the slowing industrial growth.

"With the crude oil price touching 110 dollar a barrel and the global equity market giving way to commodities touching new high, the inflationary pressure is likely to continue, disallowing the RBI to opt for cut in interest rates despite signals of a slowdown," said majority of CEOs in a survey by industry chamber Assocham.

The majority of CEOs surveyed by the industry body said the rising inflation has dashed hopes that RBI would cut interest rates to boost the sagging industrial growth.

"Government is confronted with the dilemma of keeping the inflation rate low and prevent further hardening of the interest rates, hence they are left with little elbow room," said Assocham President Venugopal Dhoot.

Also, about 85 per cent of the 130 CEOs surveyed stated, "While the government did announce fiscal measures in the Union Budget, the Indian economy cannot remain insulated from a sharp rise in global commodity prices".

On Saturday, Finance Minister P Chidambaram also indicated that RBI may not go for cut in policy interest rates due to high inflation rate.

In the backdrop of inflation breaching 5 per cent mark, to which RBI wants to limit it in the current fiscal, policymakers would refrain from moderating interest rates, especially in a year when several state assemblies have to go for polls, feel 74 per cent of the CEOs.

The industrial production in the month of January has grown by merely 5.3 per cent as compared to 11.6 per cent in the previous year. The growth in the manufacturing sector has halved to 5.9 per cent in January, compared to 12.3 per cent last year.

Nearly 83 per cent of the CEOs said that the budget proposals like reduction in general cenvat rate from 16 per cent to 14 per cent and in excise duties in auto and pharma sectors would not help contain inflation.

CEOs have also expressed fears of global energy prices rising further.