Naina Lal Kidwai's take on the RBI rate hike
Naina Lal Kidwai, the iconic chartered accountant, and currently the Country Head of HSBC India, also the President of FICCI (Federation of Indian Chambers of Commerce and Industry), has recently opined on the pressure that has built up on RBI to hike interest rates, propelled by the current weak condition of the rupee. She has remarked that any such increase would be a “body blow” to industry and growth. The rupee has seen its lowest position in recent times, plunging to a record low point of 61.21 against the dollar. Going by the data, it has lost 7.3% this year. According to speculations that are rife amongst experts, chiefly economists and the likes, RBI would be compelled to raise policy rates to meet with the ongoing inflationary expectations, due to the present volatility of the rupee. Kidwai feels that what we now require is confidence, to make a foray again into industry in terms of investments and growth. She has expressed her wish that banks should transmit series of interest rate reduction as undertaken by RBI since January, 2012. Owing to the current economic status of the country, imports have become dearer, domestic currency has depreciated, and consequently, inflation can again crop up as a pestering issue. Kidwai has reportedly told that she hopes and believes that interest rate hike will not have to be encountered in the near future; rather, we should count on its reduction instead, if that is possible by any means. According to her, high current account deficit (CAD) is the root factor behind many such problems. There has been a lot of import of gold; hence, she feels that tightening up on gold can put an end to inflations raising its ugly head over and over again. However, adequate precaution should also be taken lest the gold jewellery makers should be messed up. Since they also have been complaining of their inaccessibility to gold, it implies that they have a problem with exports, which needs to be redressed. She does not agree to the speculation that policy rate hike will lead to an increase in cost of funds, which she justifies by saying that credit off-take has also been low. She accounts for this lowness by saying that a large number of users are involved in infrastructural projects which are yet to take off. Depending on their take-off, banks will start opening the tap for these projects, which can lead to liquidity crunch. She adds that when that happens, RBI will increase the LAF limit. CAD, the difference between the outflow and inflow of foreign currency, had reached its highest till date value of 4.7% in 2012-13. Kidwai wished that banks should transmit a series of interest rate reduction undertaken by RBI.