Is the economy overheating?

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The latest figures show that India's bank loans are growing at a whopping 45%. Even steamier are the inflation numbers that have come in at nearly 6.5%. The economy is moving closer to over heating, reports CNBC-TV18.

  

The economy seems to be getting too hot to handle. Non-food credit for the latest fortnight ended March 2 shot up by 45% over the same fortnight year ago. Last month, this figure came in at 34%.  

 

In fact since December credit has been growing at a rising pace, debunking hopes that the steady rise in interest rates will slowdown the loan growth. As if this wasn't enough, the latest inflation numbers for the week ended March 3, has come in at 6.46%. The market estimated 6.3%.

 

The rise was because of increases in manufacturing products like cement and electrical as well as primary articles like minerals. Food has declined from the previous week. So does this mean the economy is over heating?

 

The RBI has long indicated its discomfort with the 30% loan growth and had said that it wants the pace to come down to 20-25%. It has hiked the repo rates six times in the past 18 months. And more lately, the cash reserve ratio in all by 150 bps, so as to suck out over Rs 60,000 cr from the banking system.

 

Now, with the credit growth still coming in at 45%, is it likely to act very soon. With the US inflation also coming in higher than expected, the hope that global factors will cool rates is also fading. The question on the market's mind is not whether rates will be hiked, but when.