Inflation down 1.60% as repo rate rises by 2.5%

New Delhi| An overall increase in the repo rate of 2.5 per cent since May, 2022 has helped to reduce inflation by 1.60 per cent. RBI Deputy Governors Debabrata Patra, Indranil Bhattacharya, Joyce John and Avnish Kumar made this claim in an article on Monday. Accordingly, the increase in the policy rate stabilized inflation and controlled aggregate demand.

It further notes that changes in monetary policy affect short-term interest rates more than long-term rates. The global economy remained strong in the first half of 2024, the article said. The fall in inflation supported domestic spending. The steady pace of economic growth is becoming an important topic in most economies amid the slowdown in monetary policy.

An RBI bulletin said that private investment is showing encouraging signs due to rising business expectations and increased consumption demand during the festive season. Overall, the country’s economic growth is being supported by the domestic sector. The temporary moderation that has been seen in the second quarter of 2024-25, aggregate demand in the country is set to overcome it. The reason for this is the increase in festive demand.

Data shows that the number of credit card transactions has slowed down. The reason for this is that financial institutions are taking precautions in view of the risks associated with unsecured loans. According to the authors, the initial pressure in the small-scale lending microfinancial sector is due to the lending drive rather than the demand from borrowers. Credit bureau data indicates that the pace of growth in retail credit has also slowed down.