According to Uday Kotak, due to the current condition of inflation, the real interest rate will be 0% only after an increase of 1%.
Uday Kotak, Chief Executive Officer (CEO) of Kotak Mahindra Bank has given important suggestions to the Reserve Bank (RBI) to deal with rising inflation. He says that to counter high inflation, the RBI needs to increase the benchmark interest rates by 1 percent by the end of this year. According to Kotak, due to the current condition of inflation rate, only after 1% increase, the real interest rate will be 0%. Kotak suggested that the central bank may hike rates four times this financial year, with a hike of 0.25 per cent each.
TCS Q4 Result Live Today: TCS earned a profit of Rs 9,926 crore, revenue crossed 50 thousand crores for the first time, announced interim dividend of Rs 22
Why 1 percent hike in interest rates is necessary
Uday Kotak has tweeted that RBI has estimated that assuming the price of crude oil at $ 100 per barrel, India’s inflation will be 5.7% in the financial year 2023, which was 4.5 percent earlier. Inflation was earlier estimated to be 5.1 per cent in the fourth quarter of FY 2023. At present the repo rate is 4 per cent. If India has to move towards 0% real rate i.e. inflation – interest rate = 0, then we have to increase the rates by 1%. This means that the rates need to increase by 0.25% every quarter.
Gold Plus Glass Industry will bring IPO, papers filed in SEBI
RBI did not change the repo rate and reverse repo rate
In its first monetary policy of the financial year 2023, RBI has retained the repo rate at 4% and the reverse repo rate at 3.35 percent. However, the RBI has lowered the inflation forecast to 5.7 per cent for the current financial year keeping in mind the Ukraine-Russia war. RBI also said that this estimate has been issued considering oil prices as $100 per barrel.
Uday Kotak said after RBI’s announcement that based on RBI’s forecast of 120 basis points increase in inflation for the full year and 5.1 per cent inflation in the fourth quarter, India needs to move towards 0 per cent real interest rate. The Real Interest Rate reflects the Purchasing Power Value of the interest paid on an investment or loan and represents the time-preference rate of the borrower and the lender.
(Article: Aakriti Bhalla)