Expect your EMIs to go up farther north. The RBI may increase the interest rates during its mid-quarter policy review on Thursday, as India’s wholesale price-based inflation rate surged to 9.06% in May from 8.66% in April.
While the average inflation in 2010-11 was 9.5% — the highest in
16 years — analysts expect 2011-12 to witness a 7.5-8% average annual inflation because of sharp hikes in prices of vital commodities, such as oil. Food prices are also set to rise in a few weeks, following a possible hike in diesel and LPG prices.
The RBI also raised the repo rate — at which banks borrow from the central bank —by nine times in 13 months to tame prices. A higher repo raises banks’ borrowing costs and prompts them to hike interest rates on loans.
“While food inflation has declined, the core inflation — inflation other than food and fuel —continues to harden, this poses some concerns that will have to be addressed,” finance minister Pranab Mukherjee said. The prime minister’s economic advisory council chairman C Rangarajan said, “We need to use more monetary and fiscal policies to contain inflation.”