The Reserve Bank of India is unlikely to take a breather in its war against inflation despite the economy showing signs of a slowdown.
Bankers and economists are expecting the central bank to continue with its anti-inflationary stance and may nudge up the short-term interest rate at which it infuses liquidity into the banking system (repo rate) by a ‘milder' 0.25 percentage points to 8.25 per cent.
Dilemma
Notwithstanding the fact that the RBI is faced with the classic growth versus inflation dilemma, the widely-held view is that exorcising the inflation-monster will take precedence over growth in mid-quarter review of the Monetary Policy, scheduled to be announced on Friday.
However, a section of analysts feel that the RBI may pause in its rate hike cycle as 11 rates hikes since March end 2010 has not had the desired impact on inflation.
It is now for the Government to take fiscal steps to tackle inflation and promote growth.
The index of industrial production reading has plunged to a 21-month low of 3.3 per cent in July, against 6.6 per cent in June, and the inflation reading in August at 9.78 per cent is just shy of double digits.
With the inflation figures touching close to double digits, the IIP number plunging and the sovereign debt situation in Eurozone fast deteriorating, the RBI faces a tough call, said Dr Brinda Jagirdar, General Manager, State Bank of India.