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Rise in interest rates may only have a moderate impact on inflation but it could upset the growth plans. In its Asian Development Outlook 2007, Asian Development Bank (ADB) has projected that the Indian economy will grow 8% in the next fiscal, compared to this year's estimate of 9.25, mainly due to the impact of Reserve Bank of India's monetary tightening which is sucking out liquidity from the system and is forcing banks to raise interest rates.
I think the higher interest rates are to be blamed for the current growth moderation resulting in lower lending to construction and a dip in demand for loans.
I also see a reduction in consumption demand and restraint in investment in new manufacturing activity.
(Tradeindia Expert)
M/S Menon Exports and Designing Ltd.
New Delhi, India
Peter, I partially agree with you. But we have the remedies. Without doubt the economy appears to have decidedly taken off and moved from a phase of moderate growth to a new phase of high growth. Achieving the necessary escape velocity to move from tepid growth into a sustained high-growth trajectory requires careful consideration of two issues and three priorities: The 2 issues are: The sustainability of high growth with moderate inflation and the inclusive nature of high growth. The 3 priorities are: Rising to the challenges and managing high growth, bolstering the twin pillars of growth - fiscal prudence & high investment and improving the effectiveness of govt intervention in areas like education, health and support for the needy.
Money Management Consultants Ltd
New Delhi, India
Free Member, Joined :05/11/2007
No of Topics Posted : 113
Reply/Comments : 14
Inflation is down now at 4.85 per cent for the week ending May 26. The rate was 5.06 per cent for the week ending May 19. Can we expect the interst rates to come down?
HANSMEK INTERNATIONAL TRADING CO. LLC.
Dubai, United Arab Emirates
Free Member, Joined :06/10/2005
No of Topics Posted : 1
Reply/Comments : 6
I feel bad to disappoint you, Mr. Chaturvedi. But the truth is that even as inflation seems to be easing, banks are unlikely to bring down interest rates in the near future as they expect increased money supply, adding inflationary pressures. I think and economists will agree with me that with robust foreign institutional investment (FII) inflow, the pressure on inflation would continue, though it has dropped in the last few weeks. Most banks feel that inflation may again go up in the near future as a robust FII inflow would only boost money supply.
I will give you an example: Prices of essential commodities are still significantly high and therefore the easing of inflation has not come as a major respite for the common man. So I feel that the inflation rate coming down is not an indication of the days to come. Actually I see both RBI and the government taking more steps — interest rate hikes, customs duty reduction, ban in futures trading of essentials to keep inflation on check.
Free Member, Joined :02/02/2007
No of Topics Posted : 122
Reply/Comments : 16
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