Will Increase Of Interest Rates Help To Curb Inflation?

The Reserve Bank of India has hiked the repo rate and hence the key interest rates in the country by 25 basis points. With this announcement of hike in repo rate, all loans have become costlier and that includes the home loan, personal loan. The RBI authorities claimed that the move has been initiated in order to curb down inflation further.

With the announcement of today’s hike in repo rate by The Reserve Bank of India, the short term lending rate stands at 8.25% and the short term borrowing by which the banks keep their funds with the RBI stands at 7.25%. This is for the 12th time since March 2010 that the central bank increased the repo rate. But in spite of all these measures, food and headline inflation remained at double digit during this period.

Finance Minister Pranab Mookherjee said, “I am hopeful that measures taken would get us back a more comfortable inflation situation earlier rather than later, while having scope for growth to pick up in the second half of the year.”

The economists are of the view that the inflation is taking place because of the disparity in demand and supply of goods in the economy. There has been normal monsoon this season and it has lead to normal production of crops in the country. Raising the cost of loans by hiking the repo rate will put a further pressure on the common man and also the industry as their interest cost will rise to a great extent. So, they are really having doubt whether this move of increasing the interest rate will be able to solve the problem at all.

JIT Mukherjii
After completing his MBA in Financial Management, he decided to shift to writing and took it as his full time career. Being the Editor-in-chief of this web magazine, he has got diverse interest in the field of politics and business related matters.

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