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The fight against inflation is not over in the US, what will the RBI do about EMI?

Sagar Patel

By Sagar Patel

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Federal Reserve Chairman Jerome Powell and RBI Governor Shaktikanta Das.

The chairman of the US central bank, the Federal Reserve, has dashed all expectations that a rate cut would soon be made. Federal Reserve Chairman Jerome Powell has clearly indicated that the fight against inflation in the United States is not over. Until the inflation figures in the United States fall to two percent, there is no hope of reducing interest rates. In such a situation, the crisis among ordinary people has deepened even further.

On the other hand, Indians were expecting that as soon as the US central bank cuts the interest rates. Similarly, the pressure on the Reserve Bank of India to reduce the repo rate will also increase. But the statements of the Federal Reserve Chairman and speculations about inflation in India are also not good. It is estimated that the inflation rate for the month of June could cross 5 percent. In such a situation, it will be interesting to see whether the inflation numbers in the US hit the target on Thursday or not. On the other hand, it will also be very interesting to see the inflation numbers in India on Friday.

Which path is the United States unwilling to abandon?

Federal Reserve Chairman Jerome Powell said Wednesday he’s not ready to declare inflation under control but believes the U.S. is on track to stable prices and unemployment remains low. Powell and other Fed officials have said they won’t cut interest rates until they’re confident inflation has moved closer to the central bank’s 2 percent target after rising rapidly during the pandemic.

The Federal Reserve is on the right track

Powell said he believes the United States is still moving toward the so-called soft landing, also on a path where the Federal Reserve’s inflation target is met and there is no increase in the unemployment rate. In 2022, when inflation in the country reached a 40-year high, the Federal Reserve began to continuously raise interest rates. Powell said the only way to return to full price stability is to keep the unemployment rate low. Which we are also moving forward on. He said we are focused on continuing on that path. Inflation in the United States was 2.6 percent in the month of May.

What will be the impact on India?

The effect of the Fed Chairman’s statement can be seen in India as well. Needless to say, whatever decision the Fed takes, the Central Bank of India also takes a similar decision. In such a situation, the RBI can also postpone the interest rate cut for a longer period. This means that it may take some time until the EMI of the loan is reduced in India. According to experts, there is also a lot of pressure on the RBI. Of the total members of the last MPC of the RBI, two have indicated to cut the interest rates.

Inflation also exceeds target in India

Inflation is above target not only in the US but also in India. The RBI has kept the inflation target above 4 per cent. At the same time, retail inflation has definitely remained below 5 per cent for the last three months. But this time, due to the increase in vegetable prices in June, retail inflation may exceed 5 per cent. Tomato prices have crossed Rs 90 at retail level. On the other hand, the price of brinjal has increased to Rs 140 per kg.

Will India follow the US?

This was stated during the RBI MPC meeting on June 7. He had indicated that it is important to keep an eye on the stance of central banks of advanced economies of the world, but there is no need to follow them. He also said that it is believed that the Indian central bank has been following the decisions of the US Federal Reserve. But India’s growth rate and inflation rate are rising and falling at their own pace. The decision to cut interest rates should also be taken on this basis. Not on the basis of decisions taken by central banks of advanced countries.

The RBI Governor’s statement speaks volumes. This means that even if the Fed’s inflation figures hit the target in a few months and the Fed cuts interest rates, it is not necessary that the inflation rate should reach the target level in the same period or that interest rates should not be changed. In such a situation, the RBI Governor made it clear to the people at that time.

There will also be a war against inflation in India

This means that in the June RBI MPC, the RBI Governor had clearly indicated that the fight against inflation in India can continue till the inflation rate comes down to 4 per cent. Even if the RBI does not increase interest rates, it can increase them without making any changes. This means that common people may have to face higher interest rates for a longer period. RBI MPC has not made any changes in the last 7 policy meetings. The last interest rate hike was on February 23, 2023. From May 2022 to February 2023, the RBI increased interest rates by 2.50 per cent. Since then, repo rates have remained at 6.50 per cent.

Sagar Patel

Sagar Patel

I am Sagar Patel, specializing in business news reporting. With a keen focus on economic trends, market analysis, and corporate developments,

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