In a pickle? The veggies behind the RBI rates

livemint.com:

RBI) has decided to maintain the status quo and keep the repo rate—the rate at which it lends to banks—at 6.5%. This was largely because the RBI believes high inflation isn’t going away anytime soon. Mint examines the details: Retail inflation, which averaged at 6.7% during 2022-23, declined in May to 4.3%—very close to the RBI’s target of 4%.

But it rose to 4.8% in June on the back of higher prices of vegetables, eggs, meat, fish, cereals, pulses and spices. In July inflation is expected to be higher than what was seen in June, primarily on account of a spike in vegetable prices, led by tomatoes. Other than this, the RBI expects inflation to go up in the next few months “on account of supply disruptions due to adverse weather conditions".

Taking these factors into account, the RBI has decided to maintain the repo rate at 6.5%. The repo rate was kept at 4% until April 2022. RBI started raising it to control high inflation that had crept into the economy, and, by February it was at 6.5%—an increase of 250 basis points in less than one year.

One basis point is one hundredth of a percentage. This has led to home loan EMIs creeping up. The interest rate on home loans has gone up from 6.5-7% to 9-10%.

The EMI on a 20-year home loan of Rs40 lakh at 6.5% was a little over Rs29,800. This has jumped by more than 20% to about Rs36,000 at 9%. This, in turn, has messed up the monthly budget of many families paying off home loans.

The RBI has revised its retail inflation forecast for 2023-24 to 5.4%. It had earlier expected the inflation to be at 5.1%. The inflation in July to September is expected to be 6.2%.