Is inflation really coming down? What will happen to the interest rates of the bank? Know what the signs mean – न्यूज़लीड India

Is inflation really coming down? What will happen to the interest rates of the bank? Know what the signs mean


India

oi-Jyoti Bhaskar

,

Updated: Thursday, November 17, 2022, 18:00 [IST]

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Inflation is such a problem that no section of the society is untouched. Countries around the world are grappling with the problem of high prices. From advanced economies such as the US and the UK to developing countries such as Indonesia and Brazil, inflation is becoming a complex question. Inflation has emerged as a major cause of concern for economic policy makers. India is also not immune to the concerns related to inflation.

inflation

Will banks cut interest rates?

Inflation was high in India before the Corona pandemic. Even after nearly two and a half years, inflation and high inflation are making people sweat. In the recent past, there have been signs of low inflation, in such a situation, the interest rates of the bank are also being questioned. It is important for the people doing financial business to know whether the interest rates of the bank will also decrease if the inflation decreases. Learn-

So what does the latest data show?

An Indian Express article on inflation and the banking system’s interest rates said, government data released a few days back showed inflation fell to a three-month low of 6.77 per cent in October. Earlier, the inflation rate in the second quarter (July-September) was 7.04 per cent. It was 7.28 per cent in the first quarter (April-June). That is, there has been a slight but steady decline in inflation for three quarters.

inflation

Not likely to get much relief

According to the report, this trend shows that inflation may have peaked, but it also needs to be noted that inflation has been higher than RBI’s estimates for the 10th consecutive month. Inflation has also remained above the upper limit of the inflation targeting framework of the Reserve Bank of India (RBI). In such a situation, there is no possibility of getting much relief on the front of inflation. Ideally, the RBI is mandated to keep inflation at 4 percent (plus/minus 2 percent).

Fall in CFPI

Part of the moderation in inflation in October can also be attributed to the decline in food inflation. A decrease of about one and a half percent was observed in the Consumer Food Price Index. The Consumer Food Price Index (CFPI) declined to 7.01 percent in October. The CFPI stood at 8.6 per cent in September last.

Oil prices not included in core inflation

The prices of both food and fuel are highly volatile in nature. If there is a big jump or fall in their prices, then there will be a possibility of huge fluctuations in the reading of overall inflation. That’s why analysts watch core inflation more closely as well. Food and fuel prices are not included in this inflation.

inflation

High inflation for the fifth consecutive month

Latest figures show that a large population is being affected due to core inflation. Due to high inflation, people are not getting much relief from inflation. According to the estimates of ICRA, the Indian agency that monitors the investment and business world, the core inflation in October stood at 6.5 per cent. On inflation, ICRA, associated with rating agency Moody’s, says that this is the fifth consecutive month when core inflation has remained above the 6 per cent level.

Price pressure continues

According to global financial group Nomura, companies did not pass on price cuts to consumers because of high input costs. The reopening of the services sector has led to pressure on prices.” This indicates that even though headline inflation appears to be coming down, price pressures remain in the economy.

inflation

What do inflation projections show?

In the last Monetary Policy Committee (MPC) meeting, the RBI had projected inflation in India at 6.5 per cent during October-December. Subsequently, inflation was projected at 5.8 per cent in the fourth quarter (January-March). Then in the first quarter (April-June) of the next financial year (2023-24), a decline in inflation was projected. According to the Reserve Bank’s MPC, inflation will fall to 5.0 per cent at the beginning of the next financial year.

Opinion different from RBI’s estimate!

However, other people’s estimates differ from RBI’s. Indian Express report quoted government officials as saying that the officials feel that there will be 6.5 percent inflation at the end of the financial year (March 2023). This is a “reasonable expectation”.

inflation

Reserve Bank of India Governor Shaktikanta Das (file photo)

Why Inflation Estimates Are Important

Nomura analysts, on the other hand, expect inflation to settle at 6.6 per cent in October-December, followed by a marginal decline to 6.3 per cent in January-March. These inflation projections also matter because it determines how policy makers will decide on bank interest rates in the coming days.

What will the policy makers do now on inflation?

So far, to tackle high inflation, the Monetary Policy Committee of RBI has raised the interest rate from 4 per cent to 5.9 per cent. Due to this decision, high interest rate is being seen on loans of common people as well as corporates, on the basis of which EMI is being recovered from the people. Now, as inflation is higher than expected, some analysts expect the RBI to keep raising interest rates to fight inflation.

It is important to keep an eye on inflation

However, there are those who believe that interest rates rise due to inflationary effects, so given that inflation is probably at its peak, it is time to wait and see for some time for inflation to come down. It would be wise to wait while keeping an eye on inflation.

inflation

RBI meeting in first week of December

According to the report of Indian Express, there is a discussion on this matter even within the Monetary Policy Committee (MPC) of RBI. MPC member Jayant Verma has stated his preference not to increase interest rates beyond 6 per cent, but others in the committee are keen to raise interest rates further. In such a situation, which view will prevail and whether there will be further hike in interest rates or not, only time will tell. The next meeting of the committee will be in the first week of December.

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english summary

Indian economy Inflation RBI policy Banking interest rates

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