Guv’s inflation remark gives market the blues
“When growth is slowing, you can stimulate the economy either by monetary easing or by fiscal stimulus, but both monetary and fiscal side have no room for stimulus. So, that is the big concern,” Subbarao was quoted as saying.
“We still believe the RBI will cut repo rates by 25 basis points since there is some turnaround in the inflation cycle,” said Abheek Barua, chief economist, HDFC Bank.
Barua said the relentless rise in consumer prices could play spoilsport. Core inflation which the RBI tracks closely for demand pressures has been consistently falling. Notwithstanding the volatility in the industrial output index, along with the lack of credit offtake, it reflects the slowdown in the economy.
For now, market participants hope that even though retail inflation could flare further given price hikes in fuel and transportation, Subbarao would cut rates as growth flounders.
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