The interest rates in India are hovering around the 6% mark, while the official inflation is running at 9% plus. So as per historical analysis, the interest rates should start moving up anytime and the rate hike also has to be sharp.
But the external environment to which India is interlinked, is not looking rosy at all. The European zone accounts for 27% of India’s exports, and those have been badly hit in the last three weeks. In fact, many small time exporters from India have started canceling their export orders voluntarily fearing payment defaults from their importers.
The US situation is also not looking that good, and it may take a longer time for it to recover to decent growth rates. There are decent chances for US to get back into a recession in the near future, if the unemployment situation remains bad.
At this time, if India raises the interest rates, that could lead to the Indian Rupee strengthening further, which the government may not want. And if the government does not raise the rates, then the income inequality could only go up as inflation would pull down the purchasing power of the masses.
At least for the next few months, we can expect the Central bank of India to retain the bank rates. Post September or October there could be a upward revision, that too marginal, say experts.