The central bank, while expressing concern on the growth and fiscal deficit fronts, has clearly indicated that it will persist with the anti-inflationary stance and has raised both the repo and reverse repo rates by 25 basis points.
This hike was on expected lines and has already been factored in by corporates and banks. The persistent high inflationary and rising rate scenario seem to be a concern for economic growth as the IIP index remained suppressed for three consecutive months of November, December and January with increases of 2.70, 2.50 and 3.70 per cent, respectively.
The inflationary pressure from non-food articles has been rising mainly due to the rise in oil prices, which stood at 29.80 per cent in February 2011 compared with 13.35 per cent a year ago. This has led to a marginal increase in the headline WPI to 8.31 per cent in February from 8.23 per cent in January. These inflationary pressures are expected to remain and we are unlikely to see headline inflation falling within RBI's comfort zone in the next 3-6 months.
(The author is National Leader, Global Financial Services, Ernst & Young.)