Name: Has RBI pressed the brakes too hard?
Uploaded: 2007-04-03T15:25:33+05:30
Description: RBI’s decision to squeeze liquidity from the market has left experts apprehending if high interest rates would kill growth.

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Mumbai: Indian economy has been moving on a fast track for a while now. But the RBI’s decision to squeeze out liquidity from the market has left the experts wondering if it’s return of the 90's era when high interest rates killed growth in the economy. 
 
The Reserve Bank of India announced a CRR hike on Friday. While the banks almost pressed a panic button hiking prime lending rates, investors sold stocks fearing harder interest rates could shave off growth. 
 
RBI hiked cash reserve ratio, or CRR by 50 basis points, and the repo rates (the rate at which banks borrow from the central bank) to 7.75 per cent on Friday. 
 
Economists say this could pull down growth from the current nine percent levels to even below 8 per cent. 
 
“RBI is tightening noose and the cost of borrowing is going up sharply. Ultimately there will be less top-line growth. Earnings are going to be downgraded by the end of this year. That will justify the underperformance of this market, which we expect to continue,” says Adrian Mowat of JPMorgan. 
 
Industrialists say their worry isn't much about the current rates, but it’s about whether RBI will tread more carefully from hereon. 
 
“We are seeing a slight slowdown and the RBI has to be careful not to over do things. We are at the tipping point,” said CII President R Seshasayee. 
 
Ajit Ranade Chief Economist, AV Birla Group said though the present situation is different from 1997, RBI will have to be careful henceforth. “Exports are growing at 11 per cent now. This is only a liquidity-led process which may get affected as RBI tightens noose.” 
 
Industry may have been jolted but it hasn’t lost confidence. Much depends on how RBI handles the economy from here on.

Has RBI pressed the brakes too hard?

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RBI’s decision to squeeze liquidity from the market has left experts apprehending if high interest rates would kill growth.

Has RBI pressed the brakes too hard?

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