RISING INFLATION NUMBERSIn the last year, inflationary pressure has returned in the economy. Supply chain issues post Covid created a spike in inflation. The surplus liquidity in the system is also contributing to high inflation. Retail inflation or consumer price index (CPI) was 5.03 per cent in February, which is more than the RBI's mandated 4 per cent with a tolerance of 2 to 6 per cent.
HIGHER CRUDE PRICESThe sudden rise in crude prices is also contributing to inflationary pressure. In the last six months, the crude oil prices have jumped from $40 a barrel to a high of $70 per barrel. The prices are currently hovering around $65 a barrel. Global investment banking firm Goldman Sachs has predicted crude prices crossing $80 a barrel mark by the end of this year. The OPEC (Organisation of the oil exporting countries) is also moving cautiously in increasing oil production on account of rising Covid cases and delayed recovery.
SECOND WAVE OF COVIDIndia is now witnessing a second wave of Covid in half a dozen states like Maharashtra, Punjab, Kerala and Karnataka. The second wave will impact the supply chain and contribute to inflation because of restrictions, night curfew, etc. Globally, there are some countries which are staring at a third wave. France and Kenya are witnessing a third wave. If the Covid disruption continues and spreads to smaller town and cities, it has the potential to impact agri supply chain and fuel inflationary pressure.
RISING G-SEC YIELDSThe rising G-Sec yield in the 10-year paper is an indication of higher borrowing costs. The 10- year yield, a benchmark, has shot up from a low of 5.94 per cent to 6.21 per cent in the last two months. The cost of borrowing for the state government is also rising. It is challenging for banks and other investors to absorb the total borrowings of over Rs 20 lakh crore from centre and states in 2021-22. They are demanding a higher yield. In fact, the G-sec yield also acts as a benchmark for corporate bond rates. The rising yield is a global phenomenon as large borrowings by governments are pushing the yields up.
HIGHER DEPOSIT RATESThe banks and NBFCs have also started hiking the term deposit rates. In January, the largest bank in the country, SBI, increased the term deposit rates by 10 basis points. The housing major HDFC Ltd has hiked the fixed deposit rates by 25 basis points. The private banks are struggling to maintain their CASA levels as newer banks with differentiated banking models are offering higher interest rates. In fact , the RBI is also expected to gradually exit from the ultra loose monetary policy, which will tighten the liquidity in the market.