BE/RBI NOTE/5/2018

Likely-hood of RBI increasing interest rate after April policy review

Bouncing back, India, has now become the fastest growing major world economy in the October-December quarter, thus overtaking China, for the first time in a year. This was due to government spending, manufacturing and services having picked up during the quarter.  The salient features:

  1. India, which is Asia’s third-largest economy produced, 7.2 percent in the December quarter, its fastest in five quarters, as per Ministry of Statistics data. This has surpassed, China’s 6.8 percent and a forecast of 6.9 percent by analysts polled by Reuters.
  2. A data in which an early interest rate hike was proposed by the economists, on the agenda, India also framed up its 2017/18 GDP growth forecast to 6.6 percent from 6.5 percent.
  3. The major setback in the past, for the Indian industries is that its manufacturers and service industries have been struggling to overcome disruptions from the bumpy launch of a national sales tax in July.
  4. In the December quarter, annual growth in the manufacturing sector however raised to 8.1 percent from 6.9 percent in the previous quarter, whereas the financial and other services grew at 7.2 percent from 5.6 percent.
  5. Further it is felt, that settling down of Goods and Services Tax (GST) reforms will boost growth in the next fiscal year.
  6. Economists are of the view that in order to balance the inflation with support for growth, RBI might raise interest rates after next policy meeting on April 5 2018.


  • The Centreal bank had kept its key rate unchanged since a 25 basis points cut in August last year. The Retail inflation eased marginally to 5.1 percent in January from a 17-month high of 5.2 percent in December.
  • In November, Moody’s raised India’s investment grade rating one notch, the agency’s first upgrade in nearly 14 years, but cautioned against macroeconomic risks.
  • India grew at more than 9 percent a year from 2005 through 2008.
  • Further, analysts said bad loans in banks and inflationary risks arising from high food and crude prices pose risks to growth.
  • Above all, there are concerns of a rising fiscal deficit and the possibility of interest rates rising further.


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