Inflation will hit till December, interest rates will continue to rise

RBI estimates consumer price inflation will remain high at 6 per cent till December

The repo rate hike was announced at a meeting of the Reserve Bank of India's Monetary Policy Committee. However, the implications of Governor Shaktikanta Das's statement while making this announcement are more understandable. The hope that higher economic growth will provide relief from the effects of the epidemic on people's livelihoods may prove futile for the common man or the middle class.

The two points of the governor's statement are understandable. On the one hand, the rate of consumer-inflated inflation will remain high till December and on the other hand, the rate of interest will go up with inflation so that the loan installment amount has to be paid more every month.

With today's growth, the RBI's key interest rate has come down to 8.50%. This rate is still lower than the interest rate before the Corona period but it is certain that this condition will not last long.

As demand declines at higher prices, rising interest rates also affect consumer purchases. People stop buying or the purchase is pushed towards the future. In both cases there is a risk of economic growth slowing as consumer purchases decline. However, the impact of inflation is immediate while the impact of interest rates occurs after a period of time so the impact of higher interest rates will slow down the economy.

Inflation will not be brought under control till December

The Reserve Bank of India (RBI) has today projected an average inflation rate of 7.5 per cent in FY2075-7 due to domestic and foreign factors. The estimate was 6.5 per cent in February, which rose to 6.5 per cent in April and now stands at 6.5 per cent.

"Inflation is projected to be 6.5 per cent between April-June, 7.5 per cent between July-September, 7.5 per cent between October-December and 6.5 per cent between January and March 203," the RBI governor said in a statement announcing the hike. . Simply put, inflation is still high till December - even if the price of crude oil averages ૫ 105 per barrel, if the monsoon brings good rains - will upset the people of the country.

The central government has reduced taxes on petrol and diesel, banned the export of wheat, abolished duties on imports of edible oils and reduced duties on imported steel. There is a risk that inflation will continue to rise even after these measures, the governor notes. "Commodity prices are high, electricity is becoming more expensive in states across the country. Problems with the distribution system have led to a shortage of supplies and manufacturers have not yet fully passed on their high costs to consumers. At present, food items account for 4% of the growth in the consumer price index, 'said Governor Das in a statement.

He added that the impact of today's repo rate hike on inflation has not been included in the annual inflation rate of 7.5 per cent.

Interest rates have risen, and will continue to rise

An extraordinary 0.30 per cent increase was announced at the extraordinary meeting of the committee on May 6, and on Wednesday came another drastic dose of 0.50 per cent interest. That is, the interest rate in the country has gone up by 0.50% in a single month.

As the repo rate rises, banks will find money more expensive, so lending rates - especially housing, consumer durable, auto loans - will also increase the monthly installment burden of loans.

The Monetary Policy Committee is a legal system that maintains a consumer price inflation of 5%. Inflation can go up to a maximum of two per cent if it falls and a maximum of six per cent if it rises. According to the Reserve Bank of India (RBI), the average consumer price index (CPI) is expected to remain at 7.5 per cent till December. This means that interest rates will continue to rise until December to stem inflation.

Another factor is also important. Interest rates were hit by historically low levels during the Corona period, when the lockdown hit the economy. After this the inflation went up so people who are not paying interest are not getting any return on the money deposited in the bank.

Inflation is high and interest rates are low. The Reserve Bank and bankers agree that it is necessary to raise interest rates to bring relief not only to inflation but also to provide relief to those who do not pay on savings.

The country's leading research institutes and banks believe that interest rates will continue to rise. On monetary policy, Crisil said interest rates would rise by another 0.5 per cent in the coming days. Bank of Baroda chief economist Madan Sabnavis says interest rates could still rise by 0.50 per cent to 0.5 per cent to keep prices down. CARE ratings show that interest rates could still rise by as much as one per cent in FY 205-2.

Interest must be raised to counter external risks

External threats to India are increasing. India is an import based country. Foreign investors are selling shares in the country's stock market. As the country's import and export deficit is widening, the current account deficit is at its highest level in the last nine years. As the deficit increases, so does the pressure on the local currency. Crude oil and other imported commodities become more expensive. The rupee is still at a record low against the dollar and risks import inflation.

On the other hand, the US Federal Reserve is threatening to push interest rates to their highest level since the 2008 financial crisis.

If the dollar returns, interest rates rise, foreign investment will still flow out of the country. In this scenario, in order to increase the returns in Indian currency, it is also necessary to raise interest rates to keep investment in India attractive so that the rupee gets a percentage and stops depreciating against the dollar.

Loss of Rs 3.5 lakh crore in savings returns due to inflation in two years

According to the Reserve Bank of India's banking statistics, comparing interest and inflation against the amount deposited in individual savings accounts and fixed deposits shows how much people have suffered in lieu of compensation. About 70 per cent of the total savings account held by banks is in the name of consumers i.e. retail, small business or individuals while in fixed deposits this share is between 15 to 18 per cent.

Savings are paid at least three percent interest. The average is calculated and the loss is estimated. In the last two years alone, people in savings accounts have had to bear a loss of Rs 2,8,31 crore due to low returns against inflation. Even fixed deposits have suffered an additional loss of Rs 11.5 crore due to record low interest rates. Thus inflation, from the return of savings to Rs. An amount of Rs 4,3,612 crore has been eaten away like locusts.

The Reserve Bank will have to answer to the government for the increase

The monetary policy framework is a statutory provision in which the Reserve Bank is required to keep consumer price inflation at 3% (up to 5% and down to 5%). The law stipulates that if the Reserve Bank fails to maintain inflation under this provision for three quarters, it will be mandatory to respond to the Central Government. Inflation is currently above 6 per cent and is expected to remain so till December, so the Monetary Policy Committee and the Reserve Bank will have to give a detailed report to the government as to why inflation is not under control.

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