Mumbai, Sept 20 (KNN) Against the backdrop of high expectations from new Governor Raghuram Rajan, the Reserve Bank of India  today raised the policy interest rates by 25 basis points (quarter of a per cent)  surprising the industry.  Rajan has signalled that while he would liberalise the banking regime, he is going to remain conservative and give priority to tackling price rise in the trade-off between inflation and growth.

The industry, exporters, small scale units included, has expressed surprise and disappointment.  It felt that Rajan could have used the opportunity provided by the US Federal Reserve which kept its easy money policy enabling flow of funds to the emerging economies like India.  That in turn, eases the pressure off the Rupee that had become a major challenge for the RBI and the Finance Ministry.  High exchange rate with weaker rupee tends to importing inflation in the form of high crude prices eventually leading to high cost of production.

“The MSME sector is not happy with the hike in interest rates as it will further increase their interest burden and will make their technology upgradation plans unviable,” said President, Federation of Indian Micro and Small & Medium Enterprises (FISME), D Gandhikumar.

“Keeping in view the lower demand and all-round increase in cost of production, MSMEs were already feeling burdened in meeting their repayment schedules to the banks; the hike in interest rates will exacerbate their pain,” he added.

While some elbow room has been given to the banks by releasing some extra liquidity, the net impact of the first policy of Rajan would be further hiking of interest rates with collateral damage to growth, analysts feel.

The State Bank of India, the banking leader, has already hiked the deposit and the lending rates giving cue to others.

The small and medium enterprises have been seeking a special dispensation for credit flows from the banks. The key government committees have also made recommendations to this effect.  (KNN/PC)