RBI in a dilemma to hike interest or not

By | September 9, 2011

A recent press report said that the Reserve Bank of India is facing heat to announce the monetary policy for the second half of this fiscal year from both industry and growth of inflation. On one hand the industrial players and consumers look forward that the RBI might not increase the interest rates as that would increase the borrowing costs on the other side irrespective of the growth dynamics inflation is compelling the RBI to hike the interest rates.

The RBI has pointed out that the future revision of monetary policy would be influenced by the movement of the inflation. The Apex bank anticipated a reversal in the inflation trajectory with regard to its past policy actions which would result in increasing moderation in demand.

There are already signs of slowdown in case of manufacturing PMI which is about to drop below 50 and revolving around the contraction zone services PMI which have dropped and entered the contraction zone yet the RBI has not shown any sign of pausing its stance in monetary policy. Some leading indicators such as excise duties have also dropped sharply. The RBI would have tight combat with the inflation with the help of monetary policy until the inflation comes to around 5.5 to 6 per cent.

The RBI has recently hiked the key policy rates which have made it mandatory for banks to hike their lending rates. The hike in lending rates has made home loan and other retail loans dearer to the borrowers.

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About Pradeep Yuvaraj

Pradeep Yuvaraj is a Co-Founder and Director at Finerva Financial Solutions Private Limited, a financial education company focused on personal finance education. He has penned over 250 articles relating to Personal Finance and clocked over 500 hours of educating individuals on managing personal finance. He is a serial entrepreneur and has been associated with 7 Start-ups. His entrepreneurial experience spans industries as varied as Education, Gas Engineering, Automobile Design, Software development and more recently a Pure play presentation design company. Prior to turning entrepreneur in 2005, he has worked for 3 of the top ten companies of the world - Shell, ExxonMobil and Total SA. This experience included handling Branch Operations, Channel Sales and Business Development across 5 states over a period of 8 years. He holds an MBA from Symbiosis and an Electronics Engineering Degree from the University of Pune.

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