Is The Cheap Demand Dream Going Bust?

Is The Cheap Demand Dream Going Bust?

 

India is in the midst of restoring macroeconomic stability. The Reserve Bank of India (RBI) hiked repo rate to 5.40%, up 50 basis points with immediate effect, the monetary policy committee (MPC) said on August 5, 2022. In high risk of recession, the RBI maintained its inflation projection at 6.7% in 2022-23 and real GDP growth projection at 7.2%.

The RBI said the domestic economy is doing well and this time normal monsoon will bring economic stability some industrial and services sector activity will increasing because of robust urban demand and increasing rural demand. This demand will also increase in coming festival season.

Though inflation persisted above the upper tolerance level of 6% for the sixth consecutive month in June. With inflation expected to remain above the upper threshold in Quarter two and quarter 3, the MPC stressed that sustained high inflation could destabilize inflation expectations and harm growth in the medium term. The RBI continues to weigh the evolving geopolitical developments and the international commodity market dynamics as key determinants of how inflation will look like in the coming quarter.

The market has not much more welcome of RBI decision on hiking the repo rate for this coming festival season because both NIFTY 50 and BSE S&P Sensex rose marginally by 0.32% and by 0.37% respectively in the first hour of trade post the MPC’s announcement.

The chief economist at Kotak Mahindra Bank, Upasana Bhardwaj said “this decision will increasing external sector imbalances and global uncertainties the need for frontloaded action was imperative and the Bank continues to see 5.75% repo rate by December 2022.”

 Niraj Kumar, the chief investment officer at Future Generali India Life Insurance believes India is close to the end of the rate hiking cycle given today’s rate action and with global data flow and commodity prices continuing to show signs of softening. “Overall, the undertone of the policy was reassuring with MPC reiterating its commitment to being supportive of growth recovery,”.

 Kalpesh Dave, the head of corporate planning and strategy at Star Housing Finance, said with interest rates now back to pre-Covid levels and economy on a higher interest rate cycle, housing finance companies, non-banking financial companies and home loan customers should brace for higher borrowing costs on new credit lines. “It makes sense to switch to fixed rate offerings after evaluating the benefits that can be incurred,” it will slightly impact on housing demand.

As we have discussed with the good monsoon this year, compared to most other countries, India is much better off and self-reliant in key supplies like food and manufactured goods.

 

Dr. S.S. Chauhan

Professor, NICE School of Business Studies,

Shobhit Institute of Engineering and Technology (Deemed- to -be University) Meerut.