When do you see a reversal in the inflation trend?

To me, inflation in the current context is an imported phenomenon. It has to be addressed. It is consequential to commodity price increases led by oil and metals. If I had not seen mitigation happening I would have been concerned. But global commodity prices, including food prices, are dropping . Domestically, we seem to have an adequate monsoon. If that is so, the next year should be dramatic. I think all signals for inflation abatement are already visible.

And interest rates?

It has to go hand-in-hand with watching for inflationary signals. One-year money in the system costs 11 per cent. You add systemic carry cost of 2 per cent and the cost of money is 13 per cent. The practical lending rate in the system is 15 per cent today. I don’t think it can be sustainable in the long run by any yardstick. Reversal will happen when in the policy context, you see inflation abating. It has already stared with oil prices being where it is today, commodity prices correcting and food supply easing.

But higher interest rates, growing EMIs and high inflation seem to have dealt a blow to consumer confidence.

We are seeing the impact of two things in one area of consumer spending because of which growth in consumer items probably has flattened out… probably slightly negative if I include housing. The reason is the multi-fold impact we are seeing there. I think one is clearly the impact of increased property rates. It has multiplied 2-3 times in the last three years. So, affordability has taken a hit. Second is that interest rates have gone up, again impairing affordability. Third is that if I have other loans for other purposes… all have gone up to higher rates.

... contd.