Inflation unlikely to ease in the coming week

"A sharp rise in oil prices and the depreciation of the rupee, which has ensured that imports are not cheaper, have partly negated government's efforts," said Dharmakirti Joshi, principal economist, Crisil.

In effect, beyond tinkering with prices of fertilisers and some other commodities, there is little that the government can do at this point of time. "The government may take some draconian measures of physical controls, which are also likely to be mostly ineffective," said Saugata Bhattacharya, vice-president, Axis Bank. He added that prices of fruit and vegetables will remain high with the hot weather pattern, although there could be some moderation in food grain prices over the next few weeks.

 

Joshi added that unless crude oil prices come down, inflationary pressures would remain.

Finance Minister P. Chidambaram today also said that unless global crude oil prices decline, India would continue to witness "pretty high inflation" in the fuel group. The basket of crude oil that Indian refineries buy rose from $89 per barrel in January 2008 to $120 per barrel as on May 15, 2008.

However, analysts are divided over the possible monetary policy action that the Reserve Bank of India may take. "We do expect a reaction from the RBI, with the intent of further dampening inflationary expectations. The logical next step is an increase in the repo rate, with a view to curtail bank creidt growth as a measure to further slow growth in money supply," Bhattacharya said.

"Moderate tightening bias in monetary policy will continue for some time. But I do not expect any rate hike. Any increase in cash reserve ratio will depend on the liquidity situation in the market," Joshi said.