New Delhi: In the near future, the general public and borrowers across the nation may see an increase in bank loan EMIs. A recent report from Bank of Baroda, released on Saturday, indicates that the Reserve Bank of India is likely to raise interest rates by 0.50 to 0.75 percent (50-75 bps) in this current cycle to manage inflation and enhance market liquidity.
The central bank recently increased its policy interest rates by 0.25% for the first time in almost four years. Moreover, the RBI has shifted its stance from “neutral” to “calibrated tightening.” Reports suggest that after absorbing excess liquidity in the banking system, the RBI may contemplate raising rates in its upcoming monetary policy review.
Consumption has remained robust during the festive season, leading to a rise in economic activity. The report highlights that the consumption and demand landscape in the country was strong in September. The festive season saw a notable surge in auto sales, electronics, and non-oil and non-gold imports. Additionally, the rising demand for electricity, increased steel consumption, and growth in the personal loan sector further underscore the economic strength. However, the report, referencing the RBI survey, also raised concerns about a decline in consumer confidence in both rural and urban regions.
Weak monsoon and rising agricultural concerns
In terms of agriculture, this year’s southwest monsoon in India has been 13% below normal due to the effects of El Niño. This weak monsoon has negatively impacted Kharif crop yields. Furthermore, the water levels in the country’s reservoirs have dropped, which could directly affect the sowing of the upcoming Rabi crops. This situation may lead to increased pressure on food prices in the future.
State of Government Treasury and Tax Collection
According to the report, the central government’s fiscal deficit has improved to 4.4 percent by September 2026, from 5.1 percent in September last year. In the first half of the current financial year (April-September), the government’s total revenue has increased by 3.6 percent. Direct tax collections have increased by 13.1 percent during this period, providing relief to the government. However, indirect tax collections have declined by 4.9 percent. At the same time, government expenditures have remained quite strong at 10.7 percent.