The RBI on Tuesday raised key interest rates for the ninth time since March 2010 by a larger-than-expected 50 basis points as it battles persistently high inflation. The repo rate, the short-term lending rate, up 50 basis points at 7.25%, while the reverse repo rate, the short-term borrowing rate, up 50 basis points at 6.25%. Cash reserve ratio, the level of deposits that commercial banks must keep with the central bank, unchanged at 6%.
A number of sectors are likely to see an after effect of RBI's move. Reacting to the hike, Arvind Parakh, direcotr-finance of JSL Stainless says, "It's the first time that RBI is seen to be decisive, ahead of the curve and determined to control inflation. The rate hike will not have a major impact on growth. Most big companies which have offshore loans will be marginally impacted by the rate hike, but interest cost for those dependent on only domestic loans will go up."
He says the steel demand will get only marginally impacted as rate hike may slightly slow auto sales.
TV Sandeep Reddy, managing director of Gayatri Projects says that the immediate impact will be that cost of BOT (build-operate-transfer) projects will go up, as they are tied up to interest rates. "We don't know by what percent interest rates would go up, as it depends on hikes in rates by banks. We will have wait and watch," he says.
Vardhan Dharkar, CFO of KEC international says that this decision of RBI will raise project costs and interest costs for the companies in the capital goods sector. He also says, "as a result of this, there may be slowing down in the capital expenditure by the industry, and will hurt the overall profitability and growth."
The CFO of Alok Industries, Sunil Khandelwal says, "Interest cost will rise and it is not encouraging for new capex. However, cost of borrowing for textile is a little lower because of the subsidies that we get. So I hope the impact is not much," he says. The company will try to save costs so that increase in interest rate does not affect the bottomline.
Ashok Mehta, CFO of Man Infrastructure sees the for overall real estate sector the hike is a concern, as the cost is going to go up, home loans are going to go up. He says, "The industry was expecting a hike due to the inflation, but 50 basis points hike is on the higher side."
Exide Industies director, Paban K Kataky says, "These measures are going to affect the auto industry as there will be pressure on lending rates. Demand is likely to slow down and the rate of growth that we have seen may not be there." He also says it is difficult to say right now what the RBI will do next".
Rajesh Jain the CMD of Emco says the action is meant to control the inflation. "Our cost of borrowing will go up and in turn cost of production will also rise. Being in the infrastructure sector, we don't see an impact in one or two quarters but over a couple of years," he says.
Bharat Mody, CFO of Ackruti City, in lines with others from the real estate sector says the hike is steep. "Everyone was expecting 25 basis point hike. The 50 bps hike will result in an increase in loan rates to builders, and we will have to wait and watch on whether the banks decide to pass it on or banks decide to absorb the hike," he says.
He however feels that the hike will not immediately impact real estate prices as they are decided by market conditions.
HM Bharuka the managing director of Kansai Nerolac fears that the increase is going to hurt the industry. "It is hurting the housing and auto sector and it is already having an impact on the paints sector. The problem the government is trying to tackle is inflation but raising rates is not the solution," he believes.
HD Khunteta, CMD of Rural Electrification Corp says the expectation was around 25 basis points. However, he says, "the government is determined to contain inflation... as far as REC is concerned, cost of borrowing will increase. If the banks increase interest rates, we will also increase the interest rate on the lending side we will go for more external commercial borrowing, we are raising over USD 1 billion in current year."
Santosh Singh, the CFO of Amtek Auto feels any rate hike will go towards strengthening the interest rates for banks, which will have a negative impact on demand in the long run. "However, I do not think the auto demand will get ffected immediately. It is more of a cumulative impact, if the RBI raises rates once or twice again then there will be some pressure on demand," he feels.
DS Kulkarni the CMD of DS Kulkarni Developers says the real-estate industry has developed a habit of receiving some shock every day and this one was expected. "The rate hike would obviously have certain impact on the sector. As it is, nationalised banks are not supporting the construction industry but housing loan segment would see a major impact," he says.
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