With the headline inflation hitting a three-year high of 7% in mid-March, from 3.8% in early January, bankers and economists have mixed views on what stand the Reserve Bank (RBI) would take in its monetary review policy this month-end.
While a few felt RBI could tweak key policy rates to rein in inflation, others said the central bank may leave rates untouched.
Some economists say monetary policy has no role in addressing high inflation, primarily caused by external factors like rising food, steel and iron ore prices globally. ?It is more of a government policy issue to address external factors,? said a research outfit economist.
Bankers, however, felt that RBI could come out with monetary policy measures like increasing the cash reserve ratio, widening the corridor rates or hiking key policy rates.
The government, on its part, has tried to address the issue partly by removing certain import tariffs and banning exports of some grain. The government hiked the minimum export price of basmati rice last month and banned exports of non-basmati rice to raise food supplies.
Similar steps have been taken by other Asian countries like Indonesia, Japan, Malaysia and Saudi Arabia to encourage the production, import or stocking of food items.
?Food is just not there on the shelf,? said an analyst at a foreign institutional investor.
?Globally, there is a huge demand-supply gap in food and energy supplies,? said B Sambamurthy, CMD, Corporation Bank. ?While tighter monetary measures are expected, it is difficult to say which tool RBI would use this time,? he added.
The ten-year benchmark bond rate appreciated 30 bps over the last three-months, signalling interest rates are poised upward. On Friday, it ended at 7.98%.
But with banks facing poor loan growth, higher rate signals from RBI could prove detrimental, said an analyst at a private bank.
Besides, with the growth rate now seen moderating to 8.0-8.5% from 9-9.5% six months ago, RBI would finding it hard to strike a balance, said a senior economist at a research outfit.
“Sectors like manufacturing, capital goods and consumer durables require a loosening of the monetary policy because of the slowdown, while the high inflation rate requires a tightening of monetary measures. RBI probably could have never faced such a dilemma,” he added.
“One needs to monitor the prices of gold and oil prices to take a cue on how the inflation rate will behave,? said Mohan Shenoi, treasurer at Kotak Mahindra Bank. “The RBI decision could be based on where the prices are at the end of this month, when it announces the policy,? he added. Gold has oscillated from $1000/oz to $880 and now is hovering around $905, while Nymex crude is traded at $105.