Households' inflation expectations impact savings in debt-based instruments: RBI paper
Inflation expectations play a vital role in regulating households’ consumption behaviour and the consequent savings, as per a paper authored by Devendra Pratap Singh, Aditya Mishra and Purnima Shaw of the Reserve Bank of India (RBI). An increase in the households’ inflation expectations impacts their savings in debt-based instruments, like bank term deposits, negatively. The authors opine that if households expect inflation to pick up in the medium term and they suspect low returns due to low real interest rates, they may prefer to invest in commodities like precious metals or jewellery. On the other hand, in a scenario of high real interest rates, households would find it more gainful to save rather than spend on present consumption.