The RBI continued to keep the repo rate unchanged at 4% on Friday. The repo rate is the rate at which the central bank lends money to the commercial banks. This decision was taken in view of the current inflationary environment. Every time the RBI is more concerned about GDP growth, but this time it was inflation. The RBI assumes crude oil price at $100/barrel for the year. This means that inflation will continue this year because India imports 80% of oil from outside. That’s why RBI governor Shaktikanta Das revised the inflation estimate for this year to 5.7%, up from the 4.5% forecast in the February meeting.
Retail inflation has been over the upper tolerance band for two months. Edible oil prices will remain at an elevated level in the near future. Higher wheat and edible oil prices will stoke food inflation, which we currently witness. For instance, the prices of chips are the same, but the quantity is decreasing.
Should This Concern Us?
It concerns that inflation is burning laymen’s pockets. The RBI’s stance on the repo rate means it doesn’t want to add up to the inflation right now. It is a positive trigger for salaried professionals. This means RBI understands the current scenario and tries to keep the inflationary environment in control. It chooses to focus on inflation ahead of economic growth. The RBI said, “Looking ahead, the inflation trajectory will depend critically upon the geopolitical situation and its impact on global commodity prices and logistics.”
What Lies Ahead?
As RBI said, everything depends on the geopolitical situation. We all need to wait for it. Until then, beat inflation by investing your funds in stocks, mutual funds, gold, bonds and real estate. Diversify your money and make profits before inflation eats up your savings.