The fifth straight increase in repo rate and focus on the withdrawal of accommodation by the Central bank to control hovering inflationary concerns and macroeconomic scenarios were expected. However, going forward, the rate hikes would start impacting the growth of the domestic economy. The central bank must maintain the neutral or positive zone of the repo rate while focusing inflation control within a tolerated threshold. As the country is on a bright spot in the global economy, currently, it’s an opportunity for India to grow and consolidate gains. As India wants to make MSMEs self-reliant, higher interest rates will increase the cost of borrowing for MSMEs. It could lead a slowdown in investment and expansion plans and impact profitability for the sector. MSMEs are already battling inflation headwinds, lower demand, and loan interests. As MSMEs require certainty of funds, we believe they would be at the edge to absorb this surge in the repo rate.
