No near term let up in inflation likely

Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Inflation for the week ended April 14, was unchanged at 6.09%, against the market estimate of 6.14%. The headline figures, though still worrisome, have come down a bit.

RBI has set a comfort zone of 5-5.5% inflation for itself, while the figures have steadfastly remained beyond the bounds of 6%. Sustained use of monetary tools over the last few months, coupled with a few policy measures by the Centre on the supply front with the reduction in import duty, have not been able to tame the runaway inflation.
The jury is still out over the many options that are left with the apex bank to control prices. As to whether RBI goes ahead and further tweak interest rates is still anybody's guess.

In the credit policy a few days back, the central bank made it abundantly clear that it would not take it long to review its stance on rates. It has left interest rates unchanged proclaiming that if the situation so warranted, it might again go in for a rate hike.

A hardening rupee, which seems to be in the middle of a record breaking spree, does not seem to be worrying RBI so much. The apex bank has refused to buy dollars, which would mean injecting fresh liquidity to the system. Experts said that going by the very nature of the monetary tools, it will take some time before the full impact of the tightening measures of RBI begin to act upon inflation.

Going by the things that stand now, it seems there will be no immediate let up in inflation, which can remain in the cusp of the comfort zone for two more months - till the monsoon breaks out. Arrival of fresh grains and cereals in the market, which is not likely to happen before October, can play a major role in sobering the price rate. Till that happens it will only be wait and watch for all.

-by Sisir Mishra