Two weeks before the Reserve Banks of India’s (RBI) quarterly monetary policy review, the Planning Commission and the Prime Minister’s economic advisory council (PMEAC) have hinted at the need for a hike in the key policy rates. This has strengthened the expectation of a 25 basis points (bps) hike in repo and reserve repo rate on the July 27 policy review.
Planning commission deputy chairman Montek Singh Ahluwalia and PMEAC chairman C Rangarajan are in favour of the current policy stance of the RBI and maintained that the growth momentum is intact in the economy that is coming out of slowdown.
The RBI has already hiked the key policy rates thrice, by 25 basis points each, since mid-March to tame inflation. The headline inflation in May stood at 10.16%, way above RBI’s comfort zone of 5.5%. ?As of now, I don’t think there is anything wrong (with the current policy stance)…I think the Reserve Bank of India should make whatever adjustments it feels, marginally,? Ahluwalia said on the sidelines of a conference.
Rangarajan said, ?RBI will take a view of the fact that inflation is still high. If inflation persists at double-digit level for months together, some action on the demand side and on the part of RBI is required.?
Economists point out that sustained inflation will make corporates investment averse, there by derailing the growth projections.
Policy makers are keenly waiting for the headline inflation figures that will be released on Wednesday before deciding on further trajectory for the fiscal and monetary policy.
With recent fuel price hike stoking the inflationary tendencies, whole sale price inflation is expected to remain above 10% in the coming months. Also unless the food prices ease further due to above average monsoon rains the numbers are expected to be in double digit.
Industrial production figures for June, which came at a seven-month low at 11.5%, had triggered speculations about further moderation in the normalisation of monetary policy.
?The IIP figures do indicate some slight reduction in the rate of growth but on the whole I believe growth rate of industrial production will be close to what we had achieved last year. I believe industrial production is still strong,? Rangarajan said.