RBI to further tighten policy to check inflation: Crisil

The Reserve Bank of India (RBI) is likely to further tighten the monetary policy to tame inflationary pressure in the economy, the country's top rating agency Crisil said here today.

"The RBI stance indicates an intention to tighten (monetary policy). Inflation level is running high and it has gone beyond food and started affecting fuel and other manufacturing products as well," Crisil Chief Executive Officer and Managing Director Roopa Kudva told reporters here.

"I think all this will be a key input to RBI in taking its interest rates and CRR decision and we expect continuous tightening as we go along, but the exact timing of how much and when is difficult to predict," Kudva said.

Inflation moderately inched up a 17-month at 9.9 per cent in March from 9.89 per cent in the previous month.

The most worrying factor for the RBI is food inflation and inflation in manufacturing products, more than real estate inflation, Kudva said an pointed out that so far, inflation remained largely concentrated on food items, particularly pulses and sugarcane. But it has now spread into manufactured items too, which is a more worrisome factor.

For the week ended April 3, however, food inflation moved down to 17.22 per cent from a 17.7 per cent in the previous week. Though inflation did not touch the double-digit mark in March it has remained far above the RBI projection of 8.5 per cent by the end of last fiscal.

Kudva pointed out that capital flows into the country are growing. The foreign investment in the corporate bonds market has reached $10-billion mark which is an all-time high. The equity market has seen in the last few months had been driven by FII investment coming in. With recovery in the global economy and good liquidity, more capital inflows can be expected in the next 12-18-months, she said.

"The role of the capital market is more crucial than ever today. While banks in developing markets like India have proved resilient, there is a need to expand the sources of capital available for the economy. That means greater reliance on the capital markets," Standard & Poor's President and Chairman of Crisil Deven Sharma said.

On sectors likely to achieve higher growth, Kudva said that due to increase in infrastructure spending, "we expect growth in construction-related sectors, which includes steel and cement to do well."

"The auto and consumer vehicles sector may grow by 10-12 per cent, two-wheelers by 8-9 per cent and cement and steel sectors by 9-12 per cent. In the telecom sector, the growth in subscribers will be robust, but revenues may not rise as tariffs are falling," Kudva said.