Fears caused by Inflation followed by Oil rate hike has led to a hike in overall rates resulting in a weakened rupee.
- The risk of inflationary pressure coupled with increased oil prices forced the MPC committee of RBI to go for a rate hike in early August this year.
- The MPC members raised alarm over the risk to the inflation target due to the impact from minimum support price (MSP) rise for crops, elevated crude prices and other factors like increase in house rent allowance and monsoon conditions.
- The policy repo rate is now 6.5 per cent which was due to increase in the rates by 25 basis points. Of-course this was earlier expected by many market forces.
- The RBI Governor added that this increase was required in securing the mandated 4 percent inflation target on a durable basis, due to the continuance of inflation risks.
- The HRA has risen continuously for the third consecutive month in June 2018, followed by increased inflation, let apart the further expected inflations.
- The inflation is attributed to the hike in petrol and diesel prices, education fees, health services and clothing.
- The hike is expected to help in bringing down the demand pressures and bring down inflation considerably.
- The report further adds that the monthly headline inflation prints for May and June have turned out to be lower than what RBI had expected.