Although RBI has voiced concerns over inflationary pressures latent in international oil and food prices, the fact is it remains silent on the possible derailment of the India growth story. It's actions of not cutting rates when the world over that's the trend, creates an interest rate arbitrage. This would not only strengthen the rupee further but along with US-EU slowdown will significantly dampen exports. Worse, IIP for November 2007, after exhibiting much volatility, has further fallen down to 5.3 per cent.In its third quarter review of the macroeconomic and monetary developments released yesterday, RBI cited oil prices and food prices led inflationary pressures as a worrisome agent. And with general elections due next year, political compulsions of low inflation would result in sacrificing growth.This becomes alarming when we take into account that it is only the monetary policy which maintains some legroom to be able to fight any growth faltering. For, under the Fiscal Responsibility and Budget Management Act, finance minister has hardly any space for manoeuvre – unlike his US counterpart who could cobble together a $150 billion fiscal stimulus. And given that the RBI has only raised its benchmark rates – bank, repo, and reverse repo – and CRR for more than two years, its inaction becomes inexplicable.
