Mounting Inflation might compel RBI to increase interest Rates

BE/RBI NOTE/28/2018

In a period of two months, possibility of the interest rates being hiked by RBI is foreseen during the ensuing bi-monthly policy meeting.   More Details are furnished below:

  1. A positive change resulting in high risks of inflation is said to be the main reason for the increase.
  2. A poll conducted consisting of over 22 market participants revealed that a majority of them were of the opinion that there would be an increase in the interest rates atleast by 25 Basic Points.
  3. RBI further adds that the increase in the cost of inflation was due to
    1. Increased oil prices,
    2. Volatility in the global financial market, and
    3. An increase in the Minimum Support Prices (MSP) for agricultural crops
  4. Also a continuous raise in the retail inflation due to an increase in the Consumer Prices from 4.7% to 5% in May was also said to be another reason for a possible rate hike.
  5. A weakening rupee value is also a factor attributed to be the cause for an increased inflation.

Further,

  • Earlier RBI had announced that the future rate moves would be Data dependent including
  • Impact of farm support prices
  • Crude oil movement and
  • Higher allowances to Government Employees.
  • A rate hike would mean that RBI stands up to its commitment of targeting inflation which otherwise bring down the risks to macroeconomic stability, in view of the global disturbances.
  • RBI is not in favour of hardening the process of rate hike since the oil prices would come down to the range of $45 to $65 a barrel in the coming years, due to US shale production and OPEC (Organization of Petroleum Exporting Countries) supply side cuts.

Author: Admin Bankedge

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