NEW DELHI: High interest rates are adding to the headline inflation and are "defeating" the Reserve Bank's objective of checking rising prices through a tight monetary policy, a study by Assocham said today.
The study said that manufacturers capacity to absorb rising interest costs is fast reaching the breaching point.
"From now on, interest costs will result in additional expenses. It is no surprise that more and more firms are queueing up for debt restructuring before the RBI and the commercial banks," it said.
The industry is already grappling with worsening global economy and risk aversion in the financial markets, it said.
"These factors have limited the ability of the corporates to raise equity from the market. Efforts to deleverage the balance-sheets are coming a cropper, as is seen from the recent trend of the companies withdrawing their local and global follow-on and IPOs," it said.
In view of this, the chamber has asked the central bank to cut key policy rates as high interest rates could adversely impact the country's industrial production and economic growth.
"Assocham is urging the RBI to reverse aggressively the direction of the policy stance. If such a course is not followed, the consequences for the industrial growth and its overall impact on the GDP would be quite adverse," Assocham President Rajkumar Dhoot said in a statement.
It said that if the situation persists the way it is, the non-performing assets (NPAs) of the banking sector would come under further pressure.
The problems of the NPAs would be more severe among the public sector banks, while the private sector banks too would face tough times going forward, the study said.
"This is because the increasing number of borrowers are finding it difficult to service the high cost debts," it said.
RBI is scheduled to announce first quarter review of monetary policy on July 31. The central bank is widely expected to maintain status quo as inflation at 7.25 per cent in June is above its comfort level of 5-6 per cent.
Courtesy: Economic Times (except the photo & additional inputs in blue)