Not yet out of woods on inflation front: RBI

Says retail inflation reading of around 5% and 4.9% in September and October, respectively, is welcome relief 
Image used for representational purpose only.
Image used for representational purpose only.

NEW DELHI: Despite the festival-related strong demand and positive consumer sentiment, challenges remain on the inflation front and the country is not completely out of difficulties yet, according to the Reserve Bank of India’s latest bulletin. 

It said the GDP growth rate will be higher in the third quarter with festival demand remaining “ebullient”. 
Consumer appliances, particularly in the mid-and premium segments, are experiencing high demand in urban areas, the “state of the economy” monthly report noted. “In urban areas, consumer appliances are in strong demand, especially in the mid- and premium segments. Consumer sentiment is upbeat.”

The RBI said investment demand appears to be resilient with the government’s infrastructure spending, an uptick in private capex, automation, digitalisation, and indigenisation providing a boost. However, it raised concerns over volatile inflationary trends. 

Retail inflation readings of around 5% and 4.9% in September and October, respectively, are a welcome relief from the average of 6.7% in 2022-23 and 7.1% in July-August 2023, said the report. “…Only risk to the RBI’s resolve to align headline inflation with the target of 4% is food inflation. Several constituent prices are already firming up – onions; tomatoes; cereals; pulses; and sugar – with the potential to disrupt the gains made in the last two months. Accordingly, in the RBI, we are bracing up for upticks in the readings for November and December.”.

The RBI’s Monetary Policy Committee (MPC) hiked repo rate by 250 basis points to 6.5% in FY23 to bring inflation under control. It kept the policy rate constant on October 6 for the fourth consecutive time. According to experts, it will maintain status quo in their upcoming meeting to be held in December.

In addition, the report said, “the transmission to term deposit rates has been strong while savings deposit rates have remained largely unchanged. Therefore, the pace of increase in deposit rates (term deposits and savings account deposits taken together) has lagged the pace of increase in lending rates in the current tightening cycle, which is reflected in an improvement in the net interest margins (NIMs) of banks during 2022-23.

RBI tightens norms for unsecured loans
NEW DELHI: The Reserve Bank of India (RBI) on Thursday asked banks and NBFCs to assign a higher risk weight for unsecured personal loans, a move aimed at making the lenders more cautious on such advances. The risk weight on unsecured consumer loans has been raised by 25 percentage points. The new regulations, however, will not be applicable on housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery. ENS

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