More of a news item but an important one. SBI and HDFC have cut home loan rates post RBI policy on Dec-13. As RBI decided to hold rates, these two lenders have cut the rates.
Just a while back, RBI DG Anand Sinha was hauling banks on why they have not raised rates after two rate hikes in Sep and Oct-13. Now they have acted post a rate pause decision by RBI.
If other banks follow by cutting rates (even on selective products), it will be a joke on RBI’s attempt to lower inflation by hiking policy rates in Sep-13 and Oct-13.
Once again, the media has reversed its stance from hawkish RBI to pragmatic RBI in a matter of three months. The idea is that inflation is driven by food and there is nothing RBI can do about it. So it is good that RBi has paused. Well the same reasons applied in Sep and Oct as well. Further, couple of two things on food inflation which is just a reiteration:
- One, in India’s case food prices will always play a huge role in our inflation baskets given the scale of low incomes and poverty. We are far away from being a middle income country, but the idea is to compare India with the advanced world where food as a portion of inflation basket is really low. And the moment we say core, there is very little weight left in inflation. In case of WPI core is 55% of headline and CPI core is just 40% of headline. So what is there to target really?
- Two, RBI may not be able to do anything about food inflation but latter plays a huge role in setting inflation expectations. So, if food prices remain persistent so does inflation expectations. Most contracts these days, the revision is a standard 10%-15% as people point to rising food prices. Even RBI’s Inflation expectaions survey shows the same thing– food prices matter.
The idea is to get some reality check on Indian economy. Food prices matter greatly here…
Mostly Economics 
March 7, 2014 at 12:30 am
Hi from Australia
I read your post with fascination in that, even though the RBI has increased your base rate you have banks that are going the other way and reducing interest rates at the same time.
Wow! That’s unheard of here. The banks down under are pretty greedy, so they do everything in their power to increase rates at every opportunity.
I wish you all well with your economy and your quality of life.