With the Reserve Bank of India (RBI) expected to continue its tight monetary policy to curb soaring inflation, the central bank may have to rework its math and lower growth and increase inflationary expectations at the forthcoming annual monetary & credit policy meeting on April 29.
Inflation touched 7.33% for the week ended April 12, from 7.14% the previous week.
Bankers, economists and other market players predict that the central bank will revise downwards its growth forecast from 8.5% to 8%, while setting a higher inflationary target of 5-5.5% from 4.5-5%, as the factors dampening growth and raising inflation are expected to linger.
Though inflation cannot be checked by monetary policy alone, analysts explain that going forward, RBI would have to take a tougher stance than it has over the last three years to check inflation in the backdrop of ensuing state and national elections.
Though RBI succeeded corralling inflation below 5% by effecting a series of hikes in the repo rate, reverse repo rate and cash reserve ratio (CRR) over the last three years, it also had to scale down the growth target from 9% to 8.5% in one of its earlier policy pronouncements.
?RBI policy has to reflect the facts, figures and the current state of the global economy. Effectively, this means there would be a further trade off between growth and inflation,?? said a senior official of the country?s largest bank, State Bank of India.
Last week, when RBI decided to hike CRR by 50 basis points in two phases, it explained that year-on-year WPI-based inflation, which was 3.83% on January 12, 2008 (the time of the announcement of the third-quarter review), increased to 7.41% by March 29 and remained high at 7.14 % by April 5. It said the overall impact on inflationary expectations needed to be monitored and moderated.
?In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is essential to take appropriate action on an urgent basis,?? maintained RBI.
