Due to Inflation Rbi is prompted to raise key bank rate ,Repo rate and Cash reserve ratio which increase the cost of borrowings and hurt interest sensitive sectors like automobiles,real estate,Infrastructure and banking.Due to Low credit offtake and higher Npa due to increase in EMI of banks it effects the Entire banking sector.Derivatives are also effected as in calculation of Theoritical future prices of stocks interest rates are fator in.
Gr8 understanding!!
to add to it!! in case of demand pull inflation reducing demand will control inflation. so incresing bank rates will increase banks cost of funds which will be passed on to consumers via increase in lending rates. the immediate impact will be reduction in demand of bikes, cars etc sales of which thrives on EMI loans. Less demand will give cos enough time to boost production capacity to equate demand supply mismatch and thereby ctrling inflation
=thats what i think!!
CAclubindia
