The point that needs to be noted here is that the journey of the capital back from the market to the various sectors these days in hurdled due to various reasons. People had invested their money, but the sector witnessed losses, leading them to either face losses, no profit, or lose the whole of the money. The same is the case with the NPAs—whose number has also witnessed an increase—where the borrower has not been able to pay back even the basic amount, not to talk of the interest amount which surely will increase. The impacts of the hike that the RBI has decided to go with are going to be quite huge. While the challenge before the RBI was to tackle the inflation, the increase in the lending rate will cause further chaos and in no case will help the Government in alleviating the issues at hand.
If experts are to be believed, then, the increase in the lending rates will also raise the borrowing costs of companies and will for sure end up hurting consumer and business sentiments—which is going to be at a point when the economy of the country is on its way for recovery. In days to come, the inflation rate is expected to touch new records while the markets will continue to face a backlash with a constant dip in the demand due to lack of capital and squeezed spending over time. Amid such a situation when the RBI is staring at an uphill task in containing the inflation, triggered by a lingering pandemic and a nagging war, the decision of upping the interest rate does not seem to have been taken to arrest the rising inflation, allowing the country’s economy to recover from the pandemic.
