Information Madness

The Reserve Bank of India is going to hike the key rates again today. Home and automobile loans are going to cost more. This is being done to control the extremely high inflation. This is the thirteenth hike since March of last year. This is going to put further pressure on economic growth.

The food inflation has already entered the double digit figure. The analysts are of an opinion that the Central Bank may increase repurchase rate by about twenty five basis points to around 8.50%. The Reserve Bank is also planning to cut its Gross Domestic Product growth forecast to 7.5% from 8 % in its second quarter review of its monetary policy.

Despite hiking the key policy rates so many times in these last eighteen months, it has not helped much in bringing down the inflation. The Central bank has already hiked the reverse and repurchase rates by twenty five basis points to 7.25% and 8.25% respectively last month.

Food inflation has gone up to 10.6% for the week ending 15^th October as against 9.32% in the previous week. The total headline inflation that is based on the wholesale price index has been recorded at 9.72% last month. If you compare, inflation has remained close to near double digit since January 2010. Central Bank’s aggressive monetary tightening measures have not helped much.

The rate hike has had its negative impact on the country’s economic growth. Industrial production has considerably slowed down in the past few months. Industrial output is likely to be subdued in the next few months with rising costs of inputs and higher interest rates. Business confidence, particularly among small companies, has gone down in the recent months as per a recent survey done by the Confederation of Indian Industry.