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Successive rate hikes failed to curb household demand: CMIE

Successive rate hikes failed to curb household demand: CMIE
PTI
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First Published: Sun, Sep 18 2011. 06 34 PM IST
Updated: Sun, Sep 18 2011. 06 34 PM IST
Mumbai: The 12 rate hikes, in the past 18 months, by the Reserve Bank have failed to hurt growth in aggregate demand as households are not yet sufficiently leveraged for their demand to be impacted by the hike in interest rates, says leading financial services agency Centre for Monitoring Indian Economy (CMIE).
Therefore, core inflation will continue to remain high at about 8% for the fiscal ending March 2012, CMIE said in its monthly review.
“Though RBI’s interest rate hikes have been transmitted well with banks responding to the announcements by passing on the rate hikes to borrowers, these hikes do not seem to hurt the growth in aggregate demand,” CMIE said.
This, according to the agency, is because the “households are not yet sufficiently leveraged for their demand to be impacted by the hike in interest rates.”
According to estimates made by CMIE, based on responses from about 1,50,000 randomly selected households, less than 15% households were borrowers in the last fiscal. Further, loan servicing by households (the equated monthly installments) form less than 1% of the total income of households.
The report further says that while on the margin, leveraged consumption demand from the households is expected to be hurt, the impact of these on the aggregate is likely to be too small to make a difference.
Due to repeated action by the RBI, the average base rates have risen from 7.9% in August 2010 to 10.5% in August this year, the report notes.
The RBI has raised interest rates 12 times in the past 18 months. During this period, inflation, as measured by the wholesale price index declined from 10.9% to 9.8% in August.
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First Published: Sun, Sep 18 2011. 06 34 PM IST
More Topics: CMIE | Inflation | Household | Demand | Rate Hike |