Completely unmindful of the havoc it wreaks on one and all, the monster called Inflation is surging ahead…relentlessly. Inching beyond 12%, it has left the RBI with hardly any choices but to resort to credit squeeze and interest hike yet again.
July 29, 2008 once again saw the repo rate raised by 50 basis points to a seven-year high of 9%.Not to be left behind is the cash reserve ratio (CRR which is the proportion of funds that banks must keep on deposit with RBI), which went up 25 basis points to 9%.
The dominoes effect is obviously there for all to see and feel the pinch of. Following the announcement of the RBI, many commercial banks announced increase in their lending and deposit rates. The immediate victims of the interest hike are the automobile and real-estate industries, because of an immediate reduction in demand due to high cost of loans. Obviously, if the inflationary trend continues for a longer duration, higher financing cost will adversely affect other sectors too.
Bleak scenario indeed, with little respite in sight!
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