Although recent data indicates that the battle against inflation is far from done and that a few more hikes may be required to speed the drop in inflation levels, we may have passed the peak of inflation.For stable prices in the US economy, the Federal Reserve of the United States has set a target inflation rate of 2%. The following table displays the US economy’s inflation and rate-hike pattern since January 2022.
Source: WionThe repo rate refers to the price at which the RBI lends short-term cash to other banks in India. The RBI can affect the volume of economic activity in this way. The RBI would get more interest from banks if the repo rate was raised or increased, which the banks would then recoup from the loans they provided to their clients.
The demand for loans from banks and NBFCs is impacted when the cost of borrowing increases due to rate hikes. One sector that is particularly vulnerable to these abrupt rate increases is real estate. The rise in repo rates to their greatest levels in the previous four years may have an impact on future demand, even if companies in the industry have so far dismissed any demand concerns resulting from higher rates. Housing becomes less affordable as interest rates rise, especially for lower- and middle-income families. Delays in the beginning of new endeavours and initiatives are another consequence of the rate increase.The flow of new deals remains a significant roadblock in the case of service-based industries like IT, where demand is influenced by the macroeconomic climate of the US and European markets. This is because the clients of these IT companies will look to further reduce their costs as a result of rising interest rates and inflation.
Source: Deccan Herald The central banks are currently in a precarious position as a result of the current circumstances. It is difficult to raise interest rates while attempting to calm recession fears. Yet, the Indian economy is currently in a stronger position in terms of projected GDP growth than more advanced economies. Yet, the RBI will have to strike a balance in the upcoming months to maintain the growth engine and combat inflation.
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