The inflation in the economy has been moving upward and it has reached to an alarming level in an inflationary economy. It is imperative to contain this inflation. The government has no other tools than the monetary policy tools. If one looks at the historical data provided below, it is clear Indian economy has been witnessing a very high inflation rate since 2008 but in 2010 inflation rates were in double digit about 16%.
The current inflation data shows that the inflation has again reached the double digit mark. This is a disturbing scenario. Also the growth in economy has been affected by this high inflation in economy. The Reserve Bank of India and government now indicates to increase the key interest rates to contain this inflation in the economy.
The increase in interest rates simply means that now the economy as well as customer has to feel the pinch of high inflation in the economy. The GDP growth in case high inflation will slow down and this will have huge impact on the overall growth prospects. From the consumers prospective, the consumers who have taken any kind of loans and are paying their loans in form of EMIs, these consumers have to pay more on the EMIs if they wish to complete the payment on the time. This will decrease the disposable income in the hands of consumers. Banks like ICICI Bank have already announced the hike in key interest rates.