While the Reserve Bank of India’s recent decision to reduce interest rates brings optimism to many sectors of the Indian economy, its impact on Kerala may be limited due to the state’s rising inflation. Kerala posted the highest inflation in the country for February at 7.61%, a noticeable increase from 6.76% in January, and nearly double the national average, according to data from the National Statistical Office. Experts believe this inflation spike, coupled with Kerala’s heavy reliance on imported goods, could dilute the positive effects of cheaper credit.
Economists suggest that despite inflationary concerns, lower interest rates could spur consumer activity in Kerala. Professor Mary George, an economist and former chair of Kerala’s Public Expenditure Committee, pointed out that cheaper loans would likely energize sectors like small businesses and real estate. She emphasized that reduced housing loan rates could lead to a spike in construction activity, which in turn would generate employment and stimulate related industries. However, she also cautioned that the benefits might be limited if structural challenges in the business environment remain unaddressed.
Similarly, Professor Anitha Kumari from the Gulati Institute of Finance and Taxation (GIFT) noted that lower rates could help middle- and low-income families realize their dream of homeownership. The expected drop in material costs may further accelerate real estate demand. Nevertheless, the actual gains would depend on the type of loan agreements—only those with floating interest rates will benefit directly from the repo rate reduction. Experts underline that while the RBI’s move is well-intentioned, Kerala must tackle its inflation and ease-of-doing-business issues to fully leverage the monetary policy changes.
