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Inflation up, EMIs to follow

As India’s inflation rate gallops into double digits once more — figures released on Monday showed 10.16 per cent in May — a hike in interest rates is widely expected.

business Updated: Jun 15, 2010 01:06 IST
HT Correspondent

As India’s inflation rate gallops into double digits once more — figures released on Monday showed 10.16 per cent in May — a hike in interest rates is widely expected.

If you’ve taken a loan, your EMIs are going to rise.

Analysts said an increase in loan interest rates was a matter of “not if, but when”, despite finance minister Pranab Mukhe-rjee saying a decision was unlikely before July. With food prices remaining firm, inflation has spread into ‘core inflation areas’, or prices of goods other than food and fuel.

Will prices rise further? A lot will depend on whether the monsoon is adequate. The Met department has forecast a normal monsoon, crucial for the kharif crop that accounts for more than half the country’s annual food output.

Analysts expect the RBI to exercise the option of increasing interest rates to control money supply that fans prices of goods.

“There will be inflationary pressures till the middle of July but at this point of time I am not thinking of altering interest rates,” Mukherjee told reporters after a meeting with chief executives of public sector banks.

The wholesale price index (WPI) rise of 10.16 per cent in May is lower than the revised March inflation rate of 11.04 per cent, but it is still high enough.

“Our key concern is that inflation is becoming generalised. We expect the RBI to increase rates at the July meeting,” said Sonal Varma, India Economist at Nomura Financial Advisory and Securities.