Household bills have been pushing the envelope for months with rising food prices and retail inflation that remained above the RBI’s acceptable level of 6 per cent. But the consumer price index finally fell below that threshold to 5.88 per cent in November, although the core inflation remained above 6 per cent. To buckle rising rates, the RBI may have to raise interest rates to 6.75 per cent in 2023 so that cash flow can be controlled, according to Industrial Development Bank of India’s treasury head.
Inflation pressure persists
Speaking to the Economic Times, Arun Bansal other than core inflation, there are other aspects which might trigger a price rise. He cited these factors to conclude that its still early to say that RBI has controlled inflation. Bansal also recommended keeping an eye on the depreciation of the Rupee and its difference with the US dollar.
Core inflation not the same as retail inflation
Core inflation is different from retail inflation, because it excludes food and fuel prices from calculations of rates consumers need to pay. On the other hand retail inflation relies heavily on food prices, which is why it was higher when crops were affected by erratic weather in India.
US Fed’s actions will have an impact
Since May, the repo rate hikes by RBI have taken the interest rates in India to 6.25 per cent so far, and have made borrowings costlier and EMIs heftier. Although the central bank only raised repo rate by 35 basis points in December, it will have to raise it further when the US federal reserve takes its interest rate above 5 per cent next year.
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