look news india
After the release of the minutes of the recent meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), the turmoil in the financial and banking markets has intensified. The six-member committee of the central bank has decided to keep the policy interest rate (Repo Rate) stable at 5.25 percent for now, but the members of the committee have clearly indicated that if inflation remains at a high level in the coming months, then the way for increase in interest rates may open. The committee’s stance makes it clear that the primary focus of the central bank remains on controlling inflation along with economic growth.
Key points of MPC minutes and concerns over inflation
According to the minutes released, MPC members have expressed deep concern over global geopolitical tensions, volatile crude oil prices in the international market and rising food inflation. The committee estimates that headline inflation could reach as high as 5.9 percent in the third quarter of the financial year. In such a situation, if supply-side shocks translate into widespread core inflation and inflationary pressure spreads across the economy, the central bank will have to take strict policy measures and may have to increase interest rates.
RBI’s neutral stance and ‘wait and watch’ strategy
At present RBI has kept its policy posture ‘neutral’. This means that the central bank has complete freedom to increase or decrease the rates depending on the incoming economic data as per the need. Committee members believe that instead of increasing rates immediately, the most practical option is to keep an eye on the inflation trajectory and the impact of monsoon. If food and fuel prices normalize rapidly, rates may remain stable; But in the situation of continuously high prices, monetary tightening is considered certain.
What will be the impact on general public, home loan and EMI?
If RBI increases the repo rate in future, it will have a direct impact on the borrowing cost of commercial banks. The funds received by banks from the Reserve Bank will become expensive, as a result of which banks will increase their Marginal Cost of Funds Based Lending Rate (MCLR) and External Benchmark Lending Rate (EBLR). Due to this, the interest rates on home loan, auto loan and personal loan will become expensive and the monthly EMI burden of common consumers will increase. On the other hand, senior citizens and savers seeking returns on fixed deposits (FD) and savings can get the benefit of higher interest rates.