Going by RBI’s review of economic and monetary developments, the chances of a rate cut, as widely expected by a section of the market, are slim.
The review talks about “potential inflational pressures” arising from “commodity price rise, volatile oil markets and impact of likely stronger foreign exchange inflows” into the emerging market economies. But no one is sure as yet on the stance of RBI governor Y.V. Reddy as he has a habit of surprising the market.
According to the macroeconomic review, the wholesale price index-based inflation in India has remained below 4% since mid-August 2007, in part due to moderation in the prices of some food articles and manufactured products. In the first week of January, wholesale inflation was ruling at 3.8%. This is well below RBI’s comfort zone of 5%, but the central bank said the inflation rate is “suppressed” because it doesn’t take into account last year’s surge in crude oil prices. More
Inflation in India is artificially suppressed: RBI (Business Standard 29th Jan 2008)
Rise in retail prices of fuels could raise inflation from below 4%.
In an indication that it may hold back a policy rate cut tomorrow, the Reserve Bank of India (RBI) on Monday said inflation in India was artificially “suppressed” as higher international oil prices have not been passed on to domestic consumers.
RBI CONCERNS
Practices of increased use of innovative credit instruments and complex layering of risk diffusion have taken the investor to become remote from the ultimate borrowers
Reliance only on rating agencies for risk assessment needs to be avoided
Confidence is also falling in the strength of insurers that guarantee payments on bonds More
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