Home Loan Emis Likely To Rise As RBI Hikes Rate By 25 Bps
Latest move by Rajan's has been a surprise because the wholesale price index, which has traditionally been the RBI's measure for inflation, eased to 6.16 percent in December and around same period the CPI fell to 9.87 percent. According to Rajan, the rate hike coupled with a slowing economy and a steady rupee would enable him to rein in inflation as measured by CPI to 8 percent this year. Following the 25-bps hike, RBI's repo rate — the rate at which it lends to banks in the overnight money markets — stood at 8 percent. Any banks those are depended on wholesale funds will now pay 25 basis points more as the repo rate acts as the floor for money market rates.
Refusing to accept that the RBI was trading price control for growth, Rajan said that juxtaposing growth and inflation was a big mistake and high prices were the main factor depressing consumption and, consequently, growth. "We have to get away from the sense that there is magic to be done without bringing down inflation. Ultimately, the best way we can create growth is by bringing down inflation. One of the reasons for weak consumption is inflation cutting into people's earning," said Rajan.
Rajan said that the Patel committee had indicated a glide path for disinflation that sets an objective of below 8 percent CPI by January 2015 and below 6 percent by January 2016, which was achievable. "If the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture," he said.
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