Higher interest rates in America compared to other countries

- Inflation can be broadly defined as more money chasing too few goods

The US central bank's latest rate hike represents a cumulative 3 percent (or 300 basis point) increase from its pandemic lows, a higher cumulative increase than seen among others in India, the United Kingdom, the Eurozone and South Korea.

An increase of 140 basis points has been seen in India. For Russia it has been 325 basis points. Chinese interest rates remain low amid economic crisis.

South Korea, South Africa and the United Kingdom saw increases of over 150 basis points. While in the Eurozone, an increase of 125 basis points has been seen. However, in Brazil, its benchmark interest rate has seen an increase of 1,175 percentage points.

Rising commodity prices and supply chain issues have fueled inflation across the globe. High energy costs in Europe are driving up prices. The latest inflation figure for the Eurozone was 9.1 percent. In the United States of America (USA) it was 8.3 percent. Many major economies have higher inflation rates than India. There are concerns about India's inflation index not being upgraded to reflect the latest consumption patterns.

Central banks use high interest rates to control inflation. Inflation can be broadly defined as more money chasing too few goods. Higher interest rates make money more scarce which lowers inflation which can also negatively affect growth.

According to a September 20 report by global financial services group Morgan Stanley's Asia Pacific Insight, sharp interest rate hikes in developed markets such as the US could hit a global economy that is already struggling to slow growth. The US The Federal Reserve appeared poised to raise rates as high as necessary to control inflation.

This means sacrificing growth in the near term to bring inflation under control, a process that risks global recession. Growth is already weak, especially in the Eurozone and China.

According to Bank of America's September 13 India Economic Watch report, India's inflation figure of 7 percent for August was slightly higher than expected. The index of industrial production and other indicators suggest a slowdown which makes the Reserve Bank of India's September 30 rate hike decision more difficult.

Economic activity indicators seem to be losing momentum as revealed by various data. This naturally adds to the confusion for the RBI. Experts expect the RBI to hike rates by 25-35 basis points on September 30 amid adverse effects from the base inflation figure is expected to rise further to 7.4 percent. Easing and awaiting action on the current run in currency and dwindling reserves.

Analysts expect the Reserve to hike rates by 50 bps from 35 bps previously and 25 to 25 bps in the December meeting. If commodity prices remain high in the fourth quarter of FY23, there is upside risk in the forecast. RBI may increase the rate by 50 bps in 2023 from the previous 75 bps which will take the repo rate to 6.75% by April 2023. RBI's next policy meeting will be held on September 28-30.