RBI said – this is the right time to increase interest rates, repo rate will increase further, all loans including home loans will become expensive

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New Delhi. The Reserve Bank of India (RBI) has clearly said that this is the best time to increase interest rates. RBI Governor Shaktikanta Das has said that inflation is the biggest concern right now and to control it, it is necessary to increase the repo rate.

Releasing the highlights of the meeting of the Monetary Policy Committee (MPC) of RBI in the first week of June, the Reserve Bank said that inflation is going out of our scope. There was no other way to bring it back down except by increasing the interest rates. In the MPC minutes released by RBI, it was clearly said that this is the right time to increase the interest rates. Along with controlling inflation, there is also a dual challenge of speeding up the economy. Therefore, the emphasis of Governor Das was on reducing liquidity from the market and taking up the interest rates.

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Repo rate increased by 0.90 percent in a month
To overcome inflation, the Reserve Bank is making loans expensive. This was the reason that in the results of the MPC meeting on June 8, an increase of 0.50 percent in the repo rate was implemented. About a month before this, Governor Das had given a sudden press conference and informed about a 0.40 percent increase in the repo rate. That is, within just one month, the interest rates of the loan increased by 0.90 percent.

Inflation forecast also increased by 2.20 percent
How much pressure is on the Reserve Bank regarding inflation, it can be gauged from the decisions of the recent MPC meeting. RBI has raised the retail inflation forecast for the current financial year by 2.20 per cent to 6.7 per cent. It believes that despite all the efforts, retail inflation will not fall below the fixed range of 6 percent. Retail inflation stood at 7.04 per cent in May, from an eight-year high of 7.79 per cent in April. RBI has retained the growth rate forecast for the current fiscal at 7.2 per cent.

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everything depends on inflation
MPC member Michael Patra says that the decisions of the Reserve Bank will largely depend on inflation. Our estimate is for three or four quarters ahead and in the meantime the rate of retail inflation may also come down. If there is relief from inflation in the second half of the current financial year, then the trend of increasing interest rates may also stop. However, MPC members also indicated that the repo rate may be increased once again in the August meeting.

If the repo rate increases again in the MPC meeting in August, then the debt burden on the common man will also increase. Existing and new borrowers will have to pay higher EMIs on all types of retail loans including home loans, auto loans, personal loans. The trend of increasing interest rates may continue till inflation comes under control.

Tags: inflation, RBI, RBI Governor, Shaktikanta Das

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