WPI nears 10%,but govt doesn’t see rate hike

Economists said the rate has given enough ammunition to the Reserve Bank of India to raise the rate at which it borrows from and lends to banks by 25 basis points. But the finance ministry differed,saying there was enough room before the policy announcement scheduled for April 27.

“Although most of the inflation is supply driven (short supply of commodities) and the RBI cannot do much about it,it can raise the repo and reverse repo rates by 25 basis points to check food inflation spilling over to other commodities. Inflation is likely to moderate after June,” said D K Joshi,principal economist,credit rating agency Crisil. Joshi said the RBI can also ask banks to impound more cash from their deposits instead of lending it,by raising the cash reserve ratio that is at 5.75 per cent now.

According to Kaushik Basu,chief economic advisor in the finance ministry,since RBI meets in April “there is still some time to see if the nature of inflation changes sufficiently for the right action”.

Joshi,however,said the rise would persist. The 1.5 per cent rise in the index of fuel category occurred before the excise duty revision in Budget 2010-11,he said. This means the effect of the duty hike would come into effect in subsequent data. Inflation was at 3.5 per cent a year ago. But Basu said the high inflation trend would last not more than a month. “After that inflation should begin to die down,” he told reporters. He explained that the food index in January-February has been virtually constant. “In fact it has fallen a little bit,so the food price index is driven by base effect”.

with fe