Home loan interest rates to go up once again in India. RBI takes steps to check inflation
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| Cartoon From: inkcinct.com.au |
"Tuesday’s rate hikes makes the RBI one of the most hawkish central bankers in the world having raised interest rates by 325 basis points within a short span of 16 months, showing a penchant to pull the rate trigger more often than Brazil and Israel, which have also been tweaking rates." - The Telegraph.
But will this really work to crush the inflation worm growing each day? We doubt it.
Subbarao appeared to concede that he might be firing an ineffectual cannon to slay the demon that’s spooked the RBI’s policy mandarins and thrown a lighted match at kitchen budgets across the country. The central bank said there was little sign of supportive policy action on the supply side to buttress the aggressive monetary policy stance. Inflation is expected to hover around current levels before moderating by the end of the year.
Virtually spiking the notion of an inflation-versus-growth debate, the RBI stuck to its growth forecast of 8 per cent made in May but raised its inflation forecast for March 2012 to 7 per cent from 6 per cent earlier.
“Certain moderation in growth is an inevitable price we have to pay for bringing down inflation in the short term,” Subbarao told reporters.
“There is no evidence as yet of a sharp or broad-based slowdown,” the RBI governor added. He, however, admitted that some indicators such as exports and imports, indirect tax collections, corporate sales and earnings, and demand for bank credit were suggesting that demand was moderating but only gradually.
Subbarao said the central bank would continue to watch price trends closely. Analysts said another rate hike could not be ruled out if inflation stayed above the RBI’s comfort zone.
Citigroup economist Rohini Malkani said the RBI could “elongate its tightening cycle by a further 50 basis points by December” as inflation could nudge into double digits in the coming months.
“There is still an element of suppressed inflation in the economy,” the RBI said in its first quarter monetary policy review.
“Despite the recent increase in administered fuel pries, the under-recoveries (by state-owned oil refiners) on account of subsidised fuel are estimated at over Rs 100,000 crore of which a major portion may have to be bore by the government. Regardless of how the issue is handled, there will be implications for inflation,’’ the central bank warned, adding that there were some administered items in the wholesale price index (WPI) basket whose prices may be increased in the coming months.
Inflation in India is principally measured against the WPI though it has other consumer indices as well.
Virtually spiking the notion of an inflation-versus-growth debate, the RBI stuck to its growth forecast of 8 per cent made in May but raised its inflation forecast for March 2012 to 7 per cent from 6 per cent earlier.
“Certain moderation in growth is an inevitable price we have to pay for bringing down inflation in the short term,” Subbarao told reporters.
“There is no evidence as yet of a sharp or broad-based slowdown,” the RBI governor added. He, however, admitted that some indicators such as exports and imports, indirect tax collections, corporate sales and earnings, and demand for bank credit were suggesting that demand was moderating but only gradually.
Subbarao said the central bank would continue to watch price trends closely. Analysts said another rate hike could not be ruled out if inflation stayed above the RBI’s comfort zone.
Citigroup economist Rohini Malkani said the RBI could “elongate its tightening cycle by a further 50 basis points by December” as inflation could nudge into double digits in the coming months.
“There is still an element of suppressed inflation in the economy,” the RBI said in its first quarter monetary policy review.
“Despite the recent increase in administered fuel pries, the under-recoveries (by state-owned oil refiners) on account of subsidised fuel are estimated at over Rs 100,000 crore of which a major portion may have to be bore by the government. Regardless of how the issue is handled, there will be implications for inflation,’’ the central bank warned, adding that there were some administered items in the wholesale price index (WPI) basket whose prices may be increased in the coming months.
Inflation in India is principally measured against the WPI though it has other consumer indices as well.
But for you, as a home buyer, it means that your home loan EMIs are scheduled to go up yet again pretty soon. Add to it that the boss is not even mentioning the raise word and daily commodity prices are on the rise. These are tough times. We hope that at least, inflation gets checked and stops eroding the actual returns on your savings and investments! We will keep you posted.
Compiled with excerpts from The Telegraph - 27th July, 2011. Kolkata
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