The inflation challenge has increased since the last time the committee convened. The RBI originally forecast a 2.2% increase in the second quarter, but it has since revised that estimate upward to 6.2% since vegetable prices have risen dramatically in July and August, with tomato prices leading the charge.
Source: Mint
The situation with the monsoon and the effects of El Nino are still unclear, but the RBI anticipates that vegetable prices may decline soon. However, there is still ambiguity regarding the trajectory of food prices.
In any case, the central bank increased its full-year inflation prediction from the previous 5.1% to 5.4%. By setting an additional cash reserve ratio of 10%, the RBI has also taken action to absorb the excess liquidity caused by the reintroduction of the Rs 2,000 notes to the banking sector. The lower rate of core inflation growth compared to the rising food inflation was one consoling element, but there is a chance that the comfort will fade in the medium run.
Because of this, Governor Shakti Kanta Das made a hawkish statement, despite the MPC maintaining its policy position. He also made it plain that the central bank was prepared to take action at any time in order to bring inflation into line with its goals.
He stated that supply side interventions can limit the severity and duration of such shocks, but there are other elements to consider, such as the growing price of petroleum. The RBI is nonetheless enthusiastic about growth despite some ambiguity and prudence on the inflation front. Even if there is weakening in external demand and the cumulative rate hikes of 250 basis points are still making their way through the system, it expects the growth momentum to continue and has kept its prediction for this year at 6.5%.
Source: The Economic Times
A good suggestion offered by the regulator, aside from the monetary policy choice, was to establish a framework for floating rates that will protect the interests of consumers, particularly home loan borrowers, by providing greater transparency in how tenures and monthly installments are modified.
The unreasonable elongation of the term of floating rate loans and the resetting of the tenor by banks have been proposed to be prohibited. Borrowers will benefit from this since lenders will have to notify borrowers of any changes and get their approval.
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