The Reserve Bank Monetary Policy Committee again enhanced the bank lending rates on August one for the second time in quick succession. In June also it enhanced the rates.
Now Repo rates have been enhanced by 0.25 basic point to make it 6.50 and Reserve Repo rates now stand at 6.25 per cent. Under the impact of RBI action the other banks will also increase the lending rates affecting the home, car and other loans.
Although the banks have increased the interest rates on deposit like fix deposit are so marginal that is below the enhancement of RBI rates on banks. Recently the Central Government hold the Government Commercial banks to enhance deposits and not depend on the Government for all time to come to get Capital Support. But now the RBI enhancement have neutralized it.
This time also the RBI has taken a plea of increase in prices and inflation in food segment. It said that the Minimum Support Price (MSP) increase for crops, crude, petrol prices will push up inflation. But the MSP should not be taken into account in the assessment of inflation and determining the bank rate.
It is Central Government almost permanent policy to enhance support prices of crops every year to make agriculture a profitable business, to provide financial help in cost of production and give boost to agricultural production. When the Central Government itself is enhancing the price of food grains it should not be taken as inflation.
Right from the UPA Government to Modi Government from the tenure of Mr. D.Subba Rao as Governor of the RBI upto M.Raghuram Rajan and now Mr.Urjit Patel the Government, industry, trade and commerce wanted that RBI decision should not be exclusively depend on food prices and inflation.
It must take into the account the requirement of manufacturing industry, import and export business sectors and other related factor and above all the climate of investment.
The UPA and Modi Government have gradually opened the Indian economy for direct foreign investment. The industry and trade will work with them in association and in competition also. The foreign investment will get capital from the banks of their nation which is much cheaper with the low banks rates 2 to 5 per cent.
While for Indian industrialist and business the capital float from the banks in very high bank rates. The RBI to maintained its GDP forecast for 2018-19 at 7.5 per cent and marginally increased its inflation forecast for the second half of the current financial year to 4.8 from 4.7 per cent.