Economic Survey Showed The Way For RBI, Inflation Will Be In Focus Before EMI Cut

Regardless of whether the Fed cuts interest rates on Wednesday or not. The central bank of India is not going to make any interest rate cut at the MPC to be held in the first week of next month. In fact, whatever the Economic Survey, which was released a day before the budget, has said about inflation is going to be implemented. This means that the RBI’s fight against inflation may continue for some time to come. In fact, concern has been expressed in the Economic Survey over food inflation. In the month of May, where food inflation had touched 10 per cent.

On the other hand, there was some relief in June but the figure is still very close to 9 per cent. Food inflation in the country has risen by 97 per cent in the last two years. Due to which the headline inflation is increasing. In June, retail inflation was above 5 per cent. While the RBI target has been set at 4 per cent. In such a situation, the RBI can leave the policy rate at the same place where it has left it for the last 8 times. This means that there has been no change in the repo rate for the last one and a half years.

What was the warning in the Economic Study?

1. According to the Economic Survey, the main reason for the continued rise in inflation is the increase in food prices.
2. According to the survey, the best-performing food inflation as measured by the Consumer Food Price Index (CFPI) stood at 3.8 percent in fiscal year 2022.
3. It declined to 6.6 percent in fiscal year 2023. Food inflation is estimated at 7.5 percent in fiscal year 2024.
4. There has been a 97 per cent increase in food inflation in the last two financial years.
5. In June, according to government data, food inflation was 9.55 percent, while in May 2024 this figure stood at 8.69 percent.
6. In the Economic Survey, it is said that the main reason for the increase in inflation is climate change.
7. According to the Economic Survey, food prices have increased due to increasing heat, uneven monsoons across the country, unseasonal rains, hailstorms and drought in different parts of the country.
8. According to the survey, prices of vegetables have increased due to crop losses due to extreme heat and heavy rains. Prices of tomatoes and onions have therefore increased.
9. Talking about legumes, legume production has decreased in the last two years and there has been an increase in prices.
10. As for retail inflation, it has reached a 5-month high. Retail inflation stood at 5.08 percent in June.
11. Retail inflation in the month of April was 4.75 percent. That was at the lowest level in about a year. Retail inflation stood at 4.83 percent in the month of May.

Emphasis on controlling inflation

If experts are to be believed, the Reserve Bank may also lay emphasis on controlling inflation this time. This is the reason why there is a possibility that there will be no change in the repo rate this time. This means that common people may have to wait a little longer for the loan EMI to be reduced. According to experts, what worries the RBI the most is food inflation. Due to which the headline inflation is rising. Unless the headline inflation hits 4 percent, it may prove very difficult to reduce the interest rates. It is clear that the RBI’s focus will be on the decisions and stance of the Federal Reserve. More than that, the focus may be on how much the food inflation along with the retail inflation in the country could reach in the last month of July.

There has been no change for a year and a half.

On the other hand, there has been no change in the interest rates for the last one and a half years. From May 2022 to February 2023, the RBI increased the rate by 2.50 percent to control inflation. After which the repo rate reached 6.50 percent. Since then there has been no change in the repo rate. Experts believe that during this period, India is the country where the policy rate has been increased the least. While in America and Europe the increase has reached 4 to 5 percent. Experts say that India may reduce the interest rate in the month of October or December. At the same time, some people say that unless the inflation rate remains at 4 percent for a whole quarter, the RBI will not take any risk of policy cut.

Will RBI follow the US?

The question is, if the US Federal Reserve cuts interest rates on Wednesday, can the RBI do so next month as well? This answer cannot be given. Its logic is hidden in the RBI Governor’s earlier statement, when he made it during the June policy meeting. He had said that there is no need for us to also do what the advanced countries of the world are doing. The decisions that the RBI will take regarding policy will be taken keeping in view the data on inflation and domestic growth.

In the last monetary policy meeting, two major signals regarding rate cuts were seen. Firstly, in the month of June, 2 out of 6 RBI MPC members voted in favour of rate cut. There was only one such vote in the April meeting. This time in the month of June, another increase in votes is definitely expected. On the other hand, a dovish attitude was observed from the RBI Governor for the coming days. This does not mean that there can be a rate cut in the month of August. It can definitely be estimated that the RBI Governor will give some indication regarding rate cut in the coming months.