Inflation inches up, EMIs will rise too

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

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

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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 Mukherjee saying in Patna that a decision was unlikely before a review slated for July.

With food prices remaining firm, it is apparent that inflation has spread into ‘core inflation areas’, or prices of goods other than food and fuel.

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

Analysts expect the Reserve Bank of India (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 I am not thinking of altering interest rates,” Mukherjee told reporters.

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.

“Managing inflation is likely to remain the key priority for the RBI. We also expect the RBI to hike rates at the July credit policy review,” said Rahul Bajoria of Barclays Capital.

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