Economic Indicators That Affect your Financial Plan
Economic indicator is a statistical data showing general trends in the economy. Most of us don’t know that these economic indicators affect our financial plan. Some economic indicators and their effect are being discussed hereunder:
1. Gross Domestic Product: The Indian economy is crawling with a growth rate under 5%. The Indian economy is expected to continue to be sluggish. Slower growth dents job prospects, forcing many to rein-in their aspirations and reset the timeline of their financial goals.
2. Inflation: Inflation is the rate of growth in prices. Price rise has been one of the chief causes of governments being voted out of power in the past, it would be safe to assume that even laypersons are aware of how inflation affects their consumption spends. Due to inflation your financial plan needs a review and needs to be altered. You should follow consumer price index (CPI) and food inflation instead of wholesale price index (WPI). These indexes tell you about inflation and help you in making appropriate alteration to your financial plan.
3. RBI’s Monetary Policy: The Reserve Bank of India, through its policy measures, influences the interest rate movements in the market using several tools like repo and reverse repo rate. Any action in this concern impacts interest rates in the system, which in turn affects your home loan or fixed deposit rates. So, it is important to understand the implications of changes in policy rates. This helps you understand at what rates RBI is willing to lend and borrow from banks. It helps you know if banks will provide cheaper loans going ahead or will they become more expensive.
4. Exchange Rate: A diminishing rupee adds to the expenses of travelling abroad, especially in US- be it leisure, business or studies. It adversely impacts corporate earnings, barring export-dependent sectors like IT. For individuals, impact can be seen in the form of rise in inflation.
5. Stock Market Indices: An indicator of the economic situation and the level of business confidence in the country, any rise or fall in Nifty or Sensex are directly reflected in your equity investments on a daily basis. They give sense of where the economy is headed. These indices are keenly watched by investment professionals, as they tend to be the barometers of economic conditions in the industry and the economy as well.
You should consider these economic indicators also while reviewing or preparing your financial plan.