Warning: Trying to access array offset on value of type null in /home/indiacommentary/public_html/header.php on line 181
oppn parties RBI: Inflationary Pressures Induce Rate Hike

News Snippets

  • India becomes the first country in the world to make flashing of anti-tobacco warning on shows on OTT platforms
  • BJP says that by targeting PM Modi on his visits abroad, Rahul Gandhi is denting India's image
  • Nepalese Prime Minister PK Dahal Prachanda arrived in India on a 4-day official visit in whihc border issues and several others contentious issues will be discussed
  • Even as Home minister Amit Shah tours Manipur and holds peace talks, violence continues in the state after a lull of one day
  • PM Modi says that boycott of Parliament inauguration by some opposition parties was an insult to the nation
  • Allahabad HC upholds Varanasi district judge's order that petition for worshipping Shringar Gauri in Gyanvapi mosque is maintainable and can be heard
  • Rahul Gandhi says if PM Modi were to meet God, he is such a 'specimen' and know-all that he would start explaining to God how the universe functions
  • Deloitte raises flags in Adani Ports' dealing with three entities regarding disclosure of facts
  • Centre meets the fiscal target of 6.4% in FY23
  • Data released by NSO shows India's GDP grew at 6.1% in Q4 and 7.2% in the full year in FY23
  • IOC takes cognizance of police action on wrestlers, asks IOA to protect athletes
  • World Rapid Chess champion Magnus Carlsen says India is doing a lot of right things and will soon emerge as a powerhouse nation in chess with scores of talented youngsters
  • Thai Open badminton: PV Sindhu & K Srikanth ousted, but Kiran George stuns third seed Shi Yu Qi 21-18, 22-20
  • The lone Congress MLA in West Bengal, Bayron Biswas from Sagardihi, who won in a byelection recently, joins Trinamool, Congress says such 'poaching' not good for opposition unity
  • PM Modi says every move of his government is guided by the wish to improve the lives of the people
Excellent GDP growth: Q4 at 6.1% and FY23 at 7.2%, beats all estimates

Warning: Trying to access array offset on value of type null in /home/indiacommentary/public_html/article.php on line 19
oppn parties
RBI: Inflationary Pressures Induce Rate Hike

By Sunil Garodia
First publised on 2018-06-06 20:59:18

About the Author

Sunil Garodia Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.
For the first time in four years, the RBI MPC raised the repo and reverse repo rates by 25 basis points to make them 6.25 and 6% respectively. This has been done to make borrowing costlier in the wake of rising inflation and expectations of further inflationary pressures. The met department has forecast a normal to good monsoon this year which means that there will be abundant crop. Couple this with the game of political oneupmanship being played around farmer distress that is sure to raise minimum support prices.

Both these events will put money in the pockets of the rural population and there will be huge demand for goods from them, further increasing the inflationary trend. Then, international price of crude and commodities show no sign of easing. The RBI has already identified inflationary trend in sectors such as transport and communication, clothing, household goods and services, health, recreation, education, and personal care. It has also made an upward revision of its inflation projections for both half of the current financial year.

In such a scenario, it is prudent to follow a tight money policy and raise rates. People with home and other loans might be asked to pay an increased EMI as a result, but the effect is going to be minimal especially as several banks, led by SBI, had increased their lending rates by 10 basis points just a few days back. It seems that it was done in expectation of an RBI increase and the banks may not raise their rates further.

It is wrong to believe that small rate increases lead people to put off investment. If a project is good and viable, a 25 basis point rate increase is not going to put much pressure on its finances. Entrepreneurs are going to look for finance and keep investing, irrespective of small increase in interest rates, as long as the overall outlook for the economy remains positive. The inflation-driven rate increase by the RBI will not act as a dampener for investment, especially since the economy is on the path of revival after having shaken off the effects of twin disruptions in demonetization and GST roll-out. Keeping this in mind, the RBI has raised the quantum of SLR, giving banks more leeway in lending.