Home & Car Loans: Prepare for inflation bombing, RBI will spoil the household budget: SBI
RBI
Highlights
- The Russo-Ukraine War contributed about 60% of the recorded sharp rise in inflation.
- RBI may increase the repo rate further by up to 0.75 percent
- Repo rate will reach the pre-pandemic level of 5.15 percent
Economists at the country’s leading bank SBI believe that nearly 60 per cent of the recent sharp rise in inflation has been attributed to factors emanating from the Russo-Ukraine war. These economists have feared that the Reserve Bank of India (RBI) may increase the policy repo rate by 0.75 percent by August to bring inflation under control. In this way the repo rate will reach the level of 5.15 percent before the pandemic.
Economists in a study on the impact of the Russo-Ukraine war on inflation have found that at least 59 percent of the rise in prices was due to the geopolitical situation created by the war. In this study, the month of February was used as the basis for price comparison.
War is the biggest cause of inflation
According to the study, the increase in the prices of food and beverage products, fuel, transport and energy due to war alone contributed 52 per cent to inflation, while 7 per cent was impacted by rising costs associated with daily consumption products.
Inflation due to drinking food in villages and petrol in cities
Economists have said in their remarks that the current situation of inflation is not likely to improve immediately. However, the form of price increase has been seen differently in urban and rural areas. Inflation is being seen more in rural areas due to increase in the price of food products, while in urban areas, the effect of increase in the price of petrol and diesel is more.
Reserve Bank will increase rates further
According to the report, “Given the continued increase in inflation, it is now almost certain that the Reserve Bank will raise interest rates during the next June and August policy review and take it to the pre-pandemic level of 5.15 percent by August.” However, SBI economists have asked the RBI to look into the aspect whether these steps can bring down inflation in a meaningful way if the war-related deadlock is not resolved soon. Along with this, he has supported the steps of the central bank, saying that the increase can also have a positive effect.
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