To tackle inflation, Reserve Bank expected to hike rates

September 15th, 2011 - 6:49 pm ICT by IANS  

Mumbai, Sep 15 (IANS) The Reserve Bank of India (RBI) is widely expected to hike interest rates for the 12th time since January last year when it meets Friday, as headline inflation continues to reign close to double digits.

The country’s central bank in its mid-quarter review of the monetary policy scheduled Sep 16 will also have to manage fears of slackening industrial output. Analysts say while factory output has been hit due to the aggressive stance of the RBI, inflation remains high.

“Headline inflation has accelerated to a high of 9.78 percent on the backdrop of weak industrial output figures. This raises the question whether the RBI’s monetary policy is having an effect at all,” said Anis Chakravarty, director, Deloitte Haskins & Sells.

“Statistics reveal that inflation since Jan 11 has consistently remained over 9 percent despite persistent rate hikes by the RBI. We hope the RBI pauses in the current cycle and reflects on alternate means to address this issue,” he said.

Latest data showed annual inflation rate for August, based on the wholesale price index, inching closer towards double digits at 9.78 percent, while food inflation still remained at elevated levels.

For the week ending Sep 3, food inflation was registered at 9.47 percent.

At the same time, India’s gross domestic product growth declined to 7.7 percent in the April-June period, the slowest in six quarters, and industrial output slumped to 3.3 percent in July, the slowest in 21 months.

As headline inflation surged closer to double-digit, the chief economist with the finance ministry, Kaushik Basu, said the Reserve Bank would have to control inflation without affecting growth too much.

“There is no black and white answer. RBI will have to balance out these two — controlling inflation and not dampening growth too much,” Basu said, while expecting inflation to remain at elevated levels till end of this year.

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