Wednesday, November 01, 2006

RBI raises its main lending rate

Reserve Bank of India did a good thing - It raised short-term lending rate to 7.25% in a cautious move to keep inflation in check.

I personally feel that RBI should boost the rate to atleast 8%. Chidambaram says that there is no inflation, that's a political speech. If you look at the prices in all metro cities, I am not sure how non-IT people afford those kind of sky-high costs. Rental rates in all metro cities are so obscene. I heard about 1000 sq.ft apartment is going for Rs. 25,000/month in Chennai. I am not sure how people can even afford it even if they make one lakh per month. Real estate prices are tripled from last year prices in some areas of Chennai. I can relate this to what happened in Silicon valley just a year ago. Whatever goes up this fast will come down. When it comes down, it's going to be ugly.

Many economists feel that there will be another 0.25% hike in 3 months. If the global situation is stable at that time, RBI may increase the rate to 7.5%. If there is a problem with global economy (Terrorism, Political fallout especially in Thailand, etc.,) RBI may keep the rate untouched.

No comments: