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Inflation on the Rise - Will the RBI Still Cut Interest Rates?
Thu, 16 Mar Pre-Open

The cost of living in India is rising - or so says the inflation data. Recent data showed India's wholesale price index (WPI) inflation rose to its highest in more than three years. WPI rose an annual 6.55% in February, rising from previous month's 5.25% increase.

The surge was seen on the back of higher fuel, power, and food prices. Fuel and power inflation rose 21.02% in February from 18.14% last month. Food inflation firmed up to 2.69% in February from a 0.56% fall in January.

And if that wasn't enough, the month of February also saw a surge in retail inflation. Retail inflation, as measured by the consumer price index (CPI), rose an annual 3.65% in February. This was faster than previous month's 3.17% rise. Also, this was marked as an end of the declining trend after seven months.

One of the repercussions of the above developments can be felt during the RBI monetary policy scheduled next week. The rising inflation has dimmed the prospects of an interest rate hike by the Reserve Bank of India (RBI). And many now believe that it would be long till the RBI will cut interest rates any further.

But what do all of these mean for the stock market participants?

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There still remain many causes for rising inflation and one can say that the inflation in India is here to stay in the near term. And one of the best bets to protect your wealth from these inflationary pressures could be buying solid stocks can help in beating inflation.

As regards RBI's stance on interest rates, what one shall note is there are a host of domestic and global factors that influence the interest rate decision apart from the inflationary pressures. And it's hard to predict what the RBI will do in its monetary policy next month.

So the best thing to do in such a scenario could be to avert your eyes from this drama and keep them focused on the value and comfort of the safest stocks. Because, as you know, neither rate hikes, nor cuts, impact our long-term view on stocks.

After all, rate cut alone will not speed up the economic slowdown caused by demonetization-led cash shortage, and consumption reduction. To set the paralyzed demand into motion, way more action needs to be taken.

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Jan 17, 2018 (Close)