In May, the retail inflation rate had come down to its lowest rate in a year at 4.7 percent, but the inflation rate of food products was 7.9 percent.
Home Loan EMI: During the last few weeks, there has been a rise in the prices of food items. Due to this, there is a danger of another new burden on the pockets of people forced to do everyday shopping at expensive prices. In fact, while inflation is spoiling the household budget, it has also increased the possibility of the estimates of interest rate cuts proving wrong.
Agencies predicting a reduction in interest rates in the second half of the financial year 2024-25 are also not as hopeful about it as before. In May, the retail inflation rate had come down to the lowest rate of 4.7 percent in 1 year, but the inflation rate of food products was 7.9 percent. After this, in June also, the food inflation rate does not seem to come down due to the continued rise in the prices of vegetables, pulses and edible oils.
Inflation rate of food products becomes the ‘villain’!
It is clear that if the food inflation rate remains at this high level, then it will not be easy to reduce interest rates. According to the monthly data of RBI released on June 19, 2024, the Central Bank is also worried about the inflation rate of food products. The data received by RBI till June 12 indicates that the rise in the prices of grains continues, as the prices of rice and wheat are increasing. Apart from this, inflation in the prices of pulses, edible oils, vegetables, tomatoes, potatoes, onions is also troubling the people and policy makers.
On this basis, RBI has called food inflation the biggest breaker in the way of reduction in interest rates. According to RBI, inflation in the food product sector is quite unstable, which is increasing the difficulty of efforts to reduce the overall inflation rate.
EMI will decrease if the inflation rate is 4%!
RBI’s goal is to keep the retail inflation rate below four percent continuously. Food inflation accounts for about 45 percent of the retail inflation rate. In such a situation, if food inflation remains at the current 8 percent or more, then it will become a big challenge for RBI to achieve this target of 4 percent. To control inflation, all the central banks of the world including RBI try the tried and tested formula of reducing demand by increasing interest rates.
In India, RBI increases or decreases the repo rate for this and the changes in this repo rate also increase or decrease the interest rate of the loan. When this decreases, all types of loans including home loans become cheaper, which helps in increasing the growth of the economy.
