Rate hike most likely in the monetary policy announcement
By Neelima Shankar
Apr 20, 2010
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The current scenario is an indicative that containment of inflation is the need of the hour, even more important than economic recovery. This is expectd to be the RBI's prime idea while presenting the monetary policy today that is April 20, 2010.

In the announcement it is widely expected that the policy rates are going to see another set of hike. This would make lending a costlier affair and thus squeeze out extra liquidity from the system.

"While recovery in private demand needs to be stronger to reinforce the growth momentum, the already elevated headline inflation suggests that the weight of policy balance may have to shift to containing inflation, since high inflation itself will dampen recovery in growth:" this was quoted by the apex bank in its Macroeconomic and Monetary Developments in 2009-10 which acts as the backdrop for the monetary policy.

It is expected by many that RBI would raise cash reserve ratio (CRR), repo and reverse repo rates. It is expected that the repo rate would see another 0.25% hike. Still some others feel that the RBI may not rise repo and reverse repo rates but may just go for a further hike in CRR.

The RBI feels that on the economic front, the country will grow at a rate of 8.2% in 2010-11 which is higher than the rate of 7.2% in 2009-10. "Support for sustained momentum in growth can be expected from all three major components, that is agriculture, industry and services,'' the report said. The Indian economy exhibited clear momentum in recovery, and despite the impact of a deficient monsoon on agricultural production. GDP growth was 6.7% recorded in 2008-09," it added.

The RBI feels that inflation would be coming down in the next few months from its peak. So the central bank suggests that it is ‘‘important to guard against the risk of hardening of inflation expectations conditioned by near double-digit headline WPI inflation''.


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