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"Inflation expectation is running very high...I think we will have to keep ourselves ready for policy rates to remain high for a longish period of time," Samiran Chakraborty, managing director and regional head of research for South Asia at Standard Chartered Bank, said at a conference organised by Confederation of Indian Industry (CII) here today.
RBI is scheduled to announce its bi-monthly monetary policy review on September 30, 2014.
Chakraborty said it will be extremely difficult for companies to generate returns if inflation and wage bill continue to rise in double digits.
"Question is who will bring down inflation...The government has to take steps to bring down food inflation, which is not in the hands of RBI. The only role that RBI is playing by keeping rates high is the second line of defence to ensure that there is no spillover of the food inflation to more generalised inflation," he said.
He, however, added that market rates may soften in the near-term if liquidity remains adequate due to inflow of capital. "Both can go hand in hand - policy rates remaining high and market rates remaining slightly soft," Chakraborty said.
