Inflation may rise, but interest rates will dip: IEG
In its latest monthly monitor, IEG said that despite this expected increase in inflation, there could still be a downward pressure on the interest rates in the next few months.
By PTI |
NEW DELHI: The Institute of Economic Growth, an economic think thank, has said that inflation rate may increase in the coming month but would remain within the RBI's target range of 4 to 4.5 per cent for this fiscal.
In its latest monthly monitor, IEG said that despite this expected increase in inflation, there could still be a downward pressure on the interest rates in the next few months.
"Two major reasons for this are - rise in real interest rate following decline in the inflation rates from its peak of 6.5 per cent and the US Federal Reserve's decision to reduce both discount rate and Federal Fund rate after keeping it constant for nearly two years," it said.
According to the institute's forecast for the next three months, inflation rate will hover between 3.3 to 4 per cent.
IEG, which is based in the national capital, has been maintaining that domestic interest rate behaviour would depend upon many international factors besides domestic factors.
The interest rate cycle is expected to follow the international interest rate cycles, the institute said.
"Following this, in our view, in the forthcoming monetary policy (or even before), we may see reduction in the policy interest rates and, hence, interest rate cycle to move downward," it said.
In its latest monthly monitor, IEG said that despite this expected increase in inflation, there could still be a downward pressure on the interest rates in the next few months.
"Two major reasons for this are - rise in real interest rate following decline in the inflation rates from its peak of 6.5 per cent and the US Federal Reserve's decision to reduce both discount rate and Federal Fund rate after keeping it constant for nearly two years," it said.
According to the institute's forecast for the next three months, inflation rate will hover between 3.3 to 4 per cent.
IEG, which is based in the national capital, has been maintaining that domestic interest rate behaviour would depend upon many international factors besides domestic factors.
The interest rate cycle is expected to follow the international interest rate cycles, the institute said.
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"Following this, in our view, in the forthcoming monetary policy (or even before), we may see reduction in the policy interest rates and, hence, interest rate cycle to move downward," it said.
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