INDIAN GOVT and RBI AGREE TO KEEP INFLATION TARGET OF 2-6% UNDER MONETARY POLICY FRAMEWORK TILL MARCH 2026
Please anyone can elaborate pros and cons. Thank you in advance
If inflation rises, the value of money drops. Prices of goods and services increase. People demand more wages. There should be small inflation (2-6%) and it shouldn’t become higher than that. To solve this, the reserve bank will increase the bank interest rates.
If the bank increases the interest rates, it will affect the stock market. Since many people invest by borrowing from the banks, they have to pay interest on that. Also, even if people using their own money to invest, increasing interest on Fixed deposits may make them park their money on FD instead of stocks, during high valuations.
Money from the US reaches Indian stocks, if the US central bank increases the interest rate then the money will outflow from the Indian stock market.
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