Recent reports said that the Reserve Bank of India is set to tighten interest rates through the major part of this fiscal. This is because the central bank sees high global crude oil and other commodity prices keeping the inflation rate above its comfort level, and affecting growth.
The RBI said continuous inflation has made it important for an anti-inflationary monetary policy stance for supporting growth over the medium term, in its report on Macroeconomic and Monetary Developments in 2010-11.
Reports said that the RBI is expected to raise its key short-term rates by 25-50 basis rein-in inflationary pressures. Empirical evidence, according to the RBI, suggests that high growth, on an average, has coexisted with low inflation and that episodes of high inflation have typically been followed by slowdown in growth rates. In case the key rates are raised then we could see hikes in Home Loan rates, Personal Loan rates etc in the retail segment
Reports said that inflation could remain high in the first half of 2011-12 before declining in the second half, but will be above the Reserve Bank’s comfort level.
The RBI’s discomfort with inflation came up since the March 2011 WPI inflation reading was higher at 8.98 per cent against the RBI’s projection of 8 per cent for FY2011. Since March 2010, the central bank has increased policy rates by 350 basis points to tackle the rising inflationary pressures.