There is growing fear amongst India Inc that the Reserve Bank of India (RBI) may hike key policy rates in its July 30 meet, after steps taken by the central bank have so far failed to stem the rupee fall.
"Fear that 30th July and monetary policy brings an interest rate hike is there, it would be a very bad move, industry would clearly see that as a negative signal which needs nurturing," Naina Lal Kidwai, president of industry body Federation of Indian Chambers of Commerce and Industry or FICCI told NDTV. (Watch video)
A day after RBI hiked overnight lending rates, the government on Tuesday eased foreign direct investment or FDI norms to attract foreign inflows into the country. However these moves failed to lift the rupee, which has been the worst performing Asian currency falling almost 10 per cent against the dollar in the last three months. Last week the rupee fell to an all-time low of 61.21.
RBI's 12,000 crore bond sale on Thursday also fell short when it accepted only one-fifth of the bids.
While Ms Kidwai said the government and the RBI's moves this week were seen as positive by the industry, she hoped the measures to suck out the liquidity were temporary.
If the liquidity squeeze remains the economy will begin to suffer, she said. The country's economy last fiscal grew at a decade-low 5 per cent.
The strengthening of the dollar and the recovery of US economy were partially responsible for the rupee weakness against the greenback, Ms Kidwai pointed out.
However, she added that the Indian economy wasn't the only one on the receiving end, other emerging economies too have been affected.