Reserve Bank of India has increased the repo rate by 140 basis points since May in order to rein in the alarming inflation. Along with the increase in the repo rate, banks have also increased the interest rates on loans, resulting in an increase in the interest cost of micro, small and medium (MSME) enterprises by about Rs 42,000 crore.
Soumya Kanti Ghosh, Chief Economist of the country’s largest bank i.e. State Bank, has brought the above information on the table through his comment. Ghosh expressed hope that the central bank must consider this low and employment-prone factor in the industry sector while deciding to raise interest rates in future. However, according to him, the repo rate can be further increased by 35-50 basis points from the bi-monthly meeting of the RBI to be held at the end of September.
Many analysts have predicted that the monetary policy review meeting of the central bank is being held between September 28 and 30 in the current month, in which steps can be taken to increase the interest rate.
Despite the Reserve Bank and the central government’s efforts to control inflation, retail inflation based on the Consumer Price Index reached 7 per cent in August last year. Consequently, the repo rate is expected to be hiked by 0.35 to 0.50 per cent after the meeting scheduled by the central bank later this month. Retail inflation has remained above the RBI’s maximum tolerance of 6 per cent for the eighth consecutive month. After hitting a five-month low of 6.71 per cent in July, retail inflation returned to 7 per cent in August. Retail inflation rose again in August, the statistics office said, driven by a rise in basic prices of food grains and vegetables.
Rahul Bajoria, Chief Economist, Barclays Securities India, said rising inflation on both the retail and wholesale fronts suggests that the RBI needs to be cautious about rising food and commodity prices and, accordingly, hike the repo rate by half a percentage point. Expected to be on 30 September. , America’s leading brokerage Morgan Stanley has predicted a hike of 0.35 per cent in the repo rate. In the current year, the marginal inflation rate is expected to be 5.3 per cent.
While the Reserve Bank has said that a further hike in interest rates is inevitable to meet its responsibility to keep inflation under check, the central government fears that this will further dampen the already low growth rate. In recent public speeches, Union Finance Minister Nirmala Sitharaman had also indirectly hinted at RBI not to hike interest rates further. In view of this, what will be the role in the upcoming loan policy has become a matter of curiosity. However, in the meetings held since May, all six members of the Credit Policy Committee, including government-appointed representatives, have shown unanimity on the interest rate hike.
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