Inflation rates in India are either zero or positive. Let me put it this way REAL INTEREST in India is likely to go up rather than go down.

If RBI were to look around, there is asset price inflation – RE is not coming down. People are talking about RE being high, transactions may not happen, but RE prices are NOT coming down.

Look at the Equity markets. Reliance Amc collected many times over the money that it wants. Icici Prudential, Icici Lombard, …etc. are quoting at a premium. Hdfc Life is gung ho about its IPO. Mutual funds are seeing record inflows in the equity schemes. Most investors have got complacent about the markets.

In other words, as the asset inflation fires rage in risk markets, the RBI has cover (and an excuse) to raise rates.  They may feel responsible for this asset inflation, and its potential risk to the economy, and thus build a case for interest rates to go up.

While rising asset prices have signaled a reason to increase interest rates, we are worried that the credit off take has not been too good. Not sure what is the reason – we do not have enough data about the bond market on a regular basis. Has some of the credit off take gone to the bonds bought by the mutual funds and the life insurance industries? Are we seeing a shrinking of the banking sector and an increase of the non banking sector willing to lend especially to the requirements of working capital? Has the private equity funding gone towards the debt requirements of the rising sectors? Nbfc is more than happy lending for expenses – and that does not augur well for the Nbfc. It is scary for sure.

Are we also continuing to detect signs of less investor-friendly forms of inflation?

Interesting, isn’t it? Consumer prices are up 2.2% year over year (over 2% goal) in the USA. Inflation in India is not really at a low. Food prices are not too high, but fuel prices are going up in India.

I am not going to be shocked if the interest rates stop coming down.

Question to ask is ‘when will interest rates go up’?

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