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Difficult times ahead! Is government worried about this untamed inflation?

Recent data released by the Ministry of Statistics & Programme Implementation (MoSPI) on India’s Consumer Price Index (CPI) showed that retail inflation eased a little to 6.44 percent in February from a high of 6.52 per cent in January. However, this decrease can’t be treated as a breather as retail inflation still remains above the RBI’s tolerance limit of 6%. Last month only RBI raised its repo rate by 25 basis points to 6.5% from 6.25%. This was the  sixth time when repo rate was raised by RBI since May last year, taking the total hike to 250 basis points with the latest increase.

These repo rate hikes fiercely burden the borrowers. Any Increase in the repo rate makes the borrowing expensive for the banks, which then pass this raised borrowing cost to customers in form of higher interest rates on retail loans such as home, car, and personal loans which manifest itself in form of elevated monthly EMI burden on consumers. Policy rate hikes also hamper the growth concerns in economy which has not still fully recovered from COVID supply side shocks.

Although these successive repo rate hikes definitely benefit the short term investments like fixed and savings deposits, but still it remains to be seen that how future dynamics unfold, with this expectation that economy is not yet again pushed in a situation of stagflation going forward. 

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