The Reserve Bank Of India is in a dilemma whether to increase or decrease interest rates and the upcoming meetings will be key to decide the way our economy turns.
To Increase Or Decrease?
The RBI is in a situation of a balancing act over whether to increase growth or retain its primary target of keeping inflation checked at 4%. Earlier, it had opted to cut interest rates to give a necessary influx to flagging investments but the current dire situation needs the RBI to repeat the act.
The problem at hand is that inflation is being increased and at the same time, growth is at its nadir. So, it becomes a hard task to decide whether to hold the rates, increase or decrease it.
Different experts have varied views on the issue at hand.
Sonal Varma, chief India economist at Nomura Holdings Inc. in Singapore remarked that,
“We expect the RBI to leave policy rates unchanged, as the momentum of core inflation has been much higher than expected and because the growth slowdown is due to non-monetary factors.”
Other prominent market analysts are of the view that a cut is of utmost importance to revive the economy.
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The rupee has already hit a 6 month low and the FDI is also going southwards which further raises concern about our credibility as an investor-friendly hub.
Lower Than Forecasted Growth
The earlier forecasted growth for the current quarter which was 6.9% is widely expected to grow at 6.6 percent, year-on-year as the Modi led government fights with uncertainty caused by a hurriedly introduced GST, a banking system with recurring problem of bad loan and companies refusing to invest more as they intend to lessen debt taken during the boom years.
A Good Time To Buy Shares
On a completely different wavelength, as per my opinion, this just might be a good time to buy shares. The shares of quite a good number of companies are quite low as of now due to an economic slowdown. If the RBI cuts interest rates, taking loans will become easy, investments will increase and hence the prices of shares will increase. So, before the cut takes place, one should buy shares now and then enjoy the profit on the increased price in the future.
As of now, it may happen that the RBI keeps its rates intact because of the ever-increasing interest rates and the increased speculation that the government will loosen its purse to boost the flagging economy. I think its necessary to keep a check on the interest rates rather than going on the emotional side to decrease the rates.
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