Words that the Apex bank of India says to others, “Be Aware; Be Alert” may be applicable to it too. Time will surely tell.
Currently the repo rate- the rate at which it lends to banks at 4 per cent and reverse repo the rate at which it borrows from banks at 3.35 per cent remain unchanged since May 2020 as RBI has focussed on growth instead of inflation.
Inflation across raw material categories has been unprecedented, with prices of some at a 40-year high. Most companies too have taken sharpest price hikes in many years.
With core inflation rising from 5.90% to 6.10%, the Reserve Bank of India may be forced to raise interest rates by as much as 100 basis points, up from previous forecast of 75 bps; earlier than anticipated as it would be forced to catch up with accelerating price pressures.
There would be some deflationary impact from a catch up in winter food supplies along with the recent correction in global commodity prices, hike in telecom tariffs and upward adjustment in GST rate for select items of clothing & footwear would add upside pressure in near term.
NPowersU Expert Opinion
USD is at 20 month high against the Rupee. Indian exports are continuously showing a downward trend year on year as per recent report by Goldman Sachs Global Investment Research. Main reason being high input costs leading to Indian goods losing its competitive edge in the global market.
With these trends, businesses who till recently were accustomed to cheap credit, it seems will wake up with one more bomb, this time from the Apex bank in the form of hike in lending rates. Such situations call for ‘Out of the box’ thinking and action rather than just biting the easy bullet.
Let’s wrap up the blog with a funny idiom – ‘God helps them that help themselves’
Let’s hope current Government is listening.
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