Ashok Lahiri warns that expansionary policy is ineffective amid inflationary risks

The Reserve Bank of India (RBI) may be forced to raise interest rates to control inflation, but too rapid an increase could put pressure on the country's economic growth rate. This is evidenced by the minutes of the Monetary Policy Committee (MPC) meeting held on Wednesday. This month, the RBI increased the repo rate for the first time in almost four years. Amid rising inflationary pressures, the question arises whether lending to the public will become more expensive in the coming months.

The RBI's Monetary Policy Committee unanimously raised the repo rate by 25 basis points this month, bringing it to 5.50%. Simultaneously, the central bank changed its monetary stance from neutral to 'calibrated tightening.' This indicates the possibility of taking further stringent measures to combat inflation, and the probability of interest rate cuts in the near future is decreasing.

The repo rate is the interest rate at which the RBI lends to banks. An increase in this rate can make borrowing more expensive for banks, which in turn will affect interest rates on home loans, auto loans, and other borrowings. However, the exact size and timing of rate changes for customers depend on the decisions of banks and lending conditions.

The RBI's main objective is to keep inflation under control. Rising crude oil prices amid the ongoing war in the Middle East and reduced rainfall during the monsoon season have intensified inflationary pressure on food commodities. This has caused concern among both the public and the central bank regarding its monetary policy. In September 2026, retail inflation in India reached 5.54%, exceeding market forecasts and approaching the upper limit of 6% set by the RBI.

The central bank forecasts an average inflation rate of 6% in the October-December quarter, and the overall forecast for the entire fiscal year was increased from 5% to 5.2%. According to the MPC minutes, many committee members expressed concern that inflationary pressures could spread to other sectors of the economy. They felt it necessary to take action before controlling price growth became difficult.

Deputy Governor of the RBI, Poonam Gupta, hinted at the need for further increases in policy interest rates to curb inflation. She emphasized the importance of timely action to prevent further growth in inflation expectations. MPC member Sougat Bhattacharya also argued for maintaining a tight monetary policy. However, he warned that too rapid an increase in interest rates could negatively affect the pace of economic development.

Indranil Bhattacharya, CEO of the RBI, supported an active stance in combating inflation. His view was that it is better to take measures promptly rather than waiting for additional signs of price increases.

Despite inflation concerns, not all MPC members agreed with an aggressive interest rate hike. Committee members Nagesh Kumar and Ram Singh opposed the decision to shift monetary policy from neutral to 'calibrated tightening.' Ram Singh warned that the change in policy stance could be perceived as a signal of prolonged high interest rates, although there are no apparent grounds for this at present.

He supported gradual and small rate increases as needed, rather than keeping them high for a long time. He believed that fears of aggressive rate hikes could weaken consumer demand, which might affect even sectors not directly dependent on interest rates. Thus, while stringent measures to curb inflation are necessary, the speed of their implementation must consider the impact on economic growth.

Interestingly, the RBI increased its projection for the country's economic growth simultaneously with rising inflation expectations. In its latest monetary policy review, the central bank raised the economic growth forecast for the current fiscal year by 40 basis points, bringing it to 7.1%. This suggests that the RBI expects strengthening economic activity but does not ignore the risks associated with rising inflation. Higher interest rates can increase the cost of borrowing and affect household and corporate spending and investment. On the other hand, if inflation remains high for a long time, people's purchasing power may weaken.

For ordinary citizens, this means that the repo rate is currently 5.50%, and the RBI's changed monetary stance has dampened hopes for a near-term rate cut. If the repo rate continues to rise, home and auto loans may become more expensive. However, the direct impact will depend on when and how much the RBI raises the rate, and how banks adjust their interest rates. Currently, the central bank faces a dual task: it needs to implement the necessary stringency to control inflation, but also ensure that interest rates do not...

Struggling households and small-scale fishermen have warned that the proposed Eskom electricity tariff increase could worsen financial difficulties, forcing families to choose between paying for electricity and other essential needs, while also jeopardizing already strained livelihoods.

These concerns were voiced during a virtual public hearing organized by the National Energy Regulator of South Africa (NERSA). At the hearings, political parties, civil society organizations, and community representatives opposed the proposed increases and demanded a more thorough review of Eskom's expenses.

The submitted comments addressed issues of affordability, regulatory oversight, and the capacity of consumers who are already battling unemployment and the rising cost of living to absorb further increases.

The organization 'The Green Connection,' which focuses on environmental justice and works with coastal communities and small-scale fishermen, warned that another significant increase in the burden would add pressure to households that are struggling to make ends meet. Its advocacy leader, Liza Makawula, noted that the proposed 8.83% rise for 2027/28 is particularly worrying following the approved 8.76% increase for 2026/27.

Makawula stated: 'For many South Africans, electricity is more than just a monthly expense; it is a matter of dignity. Families are forced to choose between electricity and meeting other basic needs, while unemployment and economic pressure continue to undermine household security.' She also called on NERSA to broaden public participation, arguing that one day of hearings is insufficient to make a decision affecting millions of people.

For fishing communities, the impact is felt both at home and at sea. Ernest Titus, a small-scale fisherman from Lambert's Bay on the West Coast, reported that rising costs for electricity, fuel, food, and school are squeezing incomes that are already insufficient to meet household needs.

He emphasized: 'Fishing is what we have known and relied on for generations. At the same time, our income must cover rising costs for electricity, food, and school. We are facing financial pressure from all sides, and our monthly income is simply not enough to cover these growing demands.' In Port Nolloth, Gina Orlam said that rising costs are placing immense pressure on families, while incomes are not keeping pace with this growth.

She questioned: 'Costs keep rising, but wages and incomes do not keep up. What about households without income or young people who want to work but cannot find opportunities?' Chanel Jaar, a young activist from Port Nolloth, reported that fishermen from Port Nolloth, Khondeklipbay, and Doringbay can spend over 2500 South African Rand on fuel for a single trip, and low catches mean they are operating at a loss.

Jaar added: 'Although the government promotes greener energy, communities are not seeing the benefits, and free basic electricity offers little relief as tariffs continue to rise. We ask how households and fishing communities are supposed to survive under such pressure.'

In Botshabelo, Free State, Moketsi Diba, representing the community organizations Green Futures and Environmental Justice Network, strongly urged the government to prioritize affordable energy and assist communities in generating their own power using solar technology.

'The Green Connection' spokesperson, Neville van Rooi, stated that affordability must be accompanied by greater transparency and regulatory control. He noted: 'NERSA must verify whether the costs presented by Eskom and other power suppliers are reasonable, justified, and necessary. Consumers must be able to understand the basis of the proposed increase, rather than bearing the financial consequences without adequate regulatory oversight.'

Van Rooi also called for communities to be properly informed about energy market reforms, including the wholesale electricity market and the unbundling of Eskom, before further increases are implemented.

Organizations and political parties at the hearings, including Better Governance Initiative (BGI), City of Cape Town, South Durban Community Environmental Alliance, and ActionSA, expressed concern over affordability, warning that further increases could exacerbate financial hardship and disproportionately burden low-income households. AfriForum cautioned that higher fixed charges could push consumers towards alternative energy sources, while NERSA stressed that its decision must comply with existing laws and policies.

Eskom defended the proposed changes, stating that the reduction in energy rates per unit compensates for adjustments to fixed service charges.

Along the Wild Coast, rising costs are compounded by environmental issues. Ntsinndiso Nongkavu, acting chairman of the Kakavu Fishermen's Cooperative in Port St Johns, said that high fuel prices make it difficult for fishermen to transport their catch at their own expense, and rising electricity costs increase operational expenses.

Nongkavu also expressed concern about the dumping of fish carcasses and the creation of unbearable odors, noting that communities were instructed not to consume the fish, but responsible departments failed to remove the carcasses. He stated: 'As livelihoods are under pressure and the cost of living rises, coastal communities feel abandoned.'

Nongkavu also questioned why fishermen affected by natural disasters do not receive the same assistance available to agricultural farmers.