RBI ups rates to rein inflation; experts find it a bit late
Published on Tue, Jul 27, 2010 at 14:53 | Source : CNBC-TV18
Updated at Tue, Jul 27, 2010 at 14:57
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RBI ups rates to rein inflation; experts find it a bit late
Maintaining its hawkish undertone, the Reserve Bank continued to crack down on inflation. It has raised the reverse repo by a half a percentage point and the repo by 25 bps. The cash reserve ratio has been kept unchanged.
Maintaining its hawkish undertone, the Reserve Bank continued to crack down on inflation. It has raised the reverse repo by a half a percentage point and the repo by 25 bps. The cash reserve ratio has been kept unchanged.
The central bank has raised its FY11 inflation projection to 6% from 5.5% earlier. The stance of the monetary policy, RBI said, is intended to contain inflation and anchor inflationary expectations, while being prepared to respond to any further build-up of inflationary pressures. The word contain in the sentence above holds a lot of significance as it shows that the central bank has not given up trying to contain inflation but is more keen to moderate it.
Why is the central bank worried about inflation? Wholesale Price Inflation has been in double-digits since February this year. Headline inflation, as measured by year-on-year variation in WPI, rose to 10.6% in June, up from 10.2% in May. This figure is expected to rise in the short-term by 1% on account of the de-regulation in fuel prices. There also been a rise in iron ore and electricity prices.
Primary food articles inflation continues to be in double-digits at 14.6%. Non-food items inflation, which was near zero in November 2009, rose sharply to 10.6% by June this year. Non-food items have contributed over 70% to WPI inflation in June.
