Increase in repo rates to affect business in Kerala ahead of Onam, says trade chamber

Kochi: The increase in repo rates could spell a gloom for business in Kerala ahead of the much-anticipated Onam season, said the Cochin Chamber of Commerce and Industry (CCCI), even as prominent bankers in the state said the hike was along expected lines.

The Reserve Bank of India (RBI) on Friday raised its key interest rate by 50 basis points to 5.4 per cent in its third such hike since May as it focuses on containing inflation.

The CCCI said increasing the repo rate makes the banks to increase their lending rates to consumers resulting in a drop in demand of money.

"This drop in demand results in less money being spent. When the repo rate increases, the cost of borrowing for banks also increases, which is passed to their account holders by increasing the interest rate on loans and deposit rates. This also makes borrowing money from the bank a costly affair, which in turn slows down investment and money supply in the market," the CCCI said in a statement.

It said more than 60 per cent of the consumer goods business in Kerala happens during Onam season.

"This increase in repo rates could spell a gloom for the Kerala business and its consumers who were looking forward to celebrating Onam after two years of lull due to COVID. More than 60 per cent of the consumer goods business in Kerala happens during Onam and festivities have already begun with many business houses offering large discounts to attract customers," it said.

Meanwhile, Venkatraman Venkateswaran, Group President and CFO of Federal Bank, said the hike by 50 basis points was imperative.

"The Monetary Policy Committee (MPC) decision to hike repo by 50 bps has been in line with our expectation. Continuing global uncertainties and trade deficit caused by imported inflation, front loading of the hike was imperative," he said.

"The rates are now back to pre-Covid levels. Core inflation continues to be elevated and above the tolerant levels of MPC. The mention of better capacity utilisation and improved bank credit growth augurs well for the banking industry," Venkateswaran said in a statement.

K Paul Thomas, MD and CEO of ESAF Small Finance Bank, said it was clear that the RBI policy revision was primarily aimed at arresting inflationary trends.

He said the impact of the global situation was reflected in the inflation recorded at 6.7 per cent.

"However, the GDP has seen a real growth of 7.2 per cent. As indicators have shown an improvement in urban demand and as there has been good progress in monsoon to support rural consumption, investment activities have picked up. However, inflation has not shown a receding trend. This rate hike looked imminent under the macro-economic circumstances," Thomas said.

RBI Governor Shaktikanta Das projected inflation at 6.7 per cent in this financial year. June was the sixth consecutive month with inflation above the central bank's tolerance level of 6 per cent, he said in a statement after a meeting of the bank's monitoring committee.

The CCCI said the hike in rates will consequently affect the consumers as they will have lesser money to spend, having to set apart higher amount towards EMI of existing loans which are on floating rate, in addition to increase in price of goods.

"While RBI has justified the increase in rates as to contain the inflation, the businesses and consumers in Kerala are in for a bitter Onam," the trade chamber said.