Inflationary pressures may force rate hike

Inflationary pressures may force rate hike
RBI hints at rate hikes

Further rate hike seems imminent with RBI saying on Monday, a day ahead of its quarterly monetary review, that inflationary pressures are likely to continue for some time. The central bank fears the situation may worsen in case of a hike in global oil prices which as such have not been fully passed on to consumers in India. Expecting that global crude prices would remain high due to tight supply conditions, RBI said in first quarterly review of Macro Economic and Monetary Developments that "the pass-through in case of administered petroleum products is still incomplete". The Government on June 5 hiked the prices of petrol, diesel and cooking gas which had catapulted inflation to double-digit mark. The increase however did not fully cover the rising prices in global markets, RBI said.

The central bank also said inflationary pressures are likely to be there for some time. "As the potential inflationary pressures from international food and energy prices appear to have amplified and, by current indications, are likely to remain so for some time," it said. In Tokyo, Finance Secretary D Subbarao also said inflation may accelerate from a 13-year high and a further interest rate increase is an "obvious solution". Global investment banker Goldman Sachs expected RBI to increase short-term lending rate (repo) and mandatory deposit rates of banks with the central bank (CRR) by 25 basis points each tomorrow as inflation is much above the RBI's comfort zone. However, chambers and bankers called for maintaining a status quo in monetary policy of the RBI since it would harm the growth prospects.

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Source:ET,UTVI