Estimates of relief in inflation due to softening of crude, what will be its effect on loan rates going forward

Inflation is estimated at 6.5 per cent for the third quarter and 5.8 per cent for the March quarter. The governor said that if the current softening in oil prices continues, then there will be relief from inflation.

Estimates of relief in inflation due to softening of crude

The Reserve Bank of India (RBI) on Friday retained its inflation forecast for the current fiscal year 2022-23 at 6.7 per cent, amid challenging global geopolitical situation arising out of the Russia-Ukraine war. RBI Governor Shaktikanta Das said that the rising inflation around the world is affecting the domestic market. However, according to the governor, the inflation rate in the country is expected to come under control gradually and if the current relief in crude oil prices continues, then there may be further improvement in inflation.

Estimates of further relief in inflation

RBI has retained the inflation forecast for the financial year 2022-23 at 6.7 per cent. It is expected to be around 6 per cent in the second half. Governor Das said that inflation is estimated at 6.5 percent for the third quarter and 5.8 percent for the March quarter. He said that if the current softening in oil prices continues, then there will be relief from inflation. It is noteworthy that in August, inflation based on the Consumer Price Index was 7 percent, which is above the satisfactory level of RBI. The central bank has been given the responsibility to keep inflation between 2-6 percent. Retail inflation is estimated to be five percent in the first quarter of the next financial year.

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What will be its effect on loan rates going forward

At present, the entire emphasis of the Reserve Bank is on controlling inflation. However, today’s policy has indicated that the central bank’s concern about inflation has reduced. In such a situation, now the focus will be on strengthening the rupee and foreign exchange reserves. In such a situation, there is a possibility that the increase in rates in the policy may remain limited and slow. Due to which business sentiments are better and with the help of acceleration in growth, the rupee and foreign exchange reserves can be strengthened. A foreign brokerage house has predicted that central banks around the world, including the Fed, will cut lending rates before 2024, while lending rates will remain stable in 2023. Although the trend of raising rates from the last quarter of 2022 to the first quarter of 2023 may continue, although different central banks may adopt different levels of strictness. The latest estimates of the Reserve Bank regarding the inflation rate are giving hope that there will be little chance of a sharp increase in rates going forward.