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RBI may not change rates, inflation under watch

Sunday, July 29, 2007

Ahead of the RBI quarterly review of credit policy on Tuesday, there seems to be a consensus among economists that policy rates would be left untouched, and the apex bank would adopt a wait-and-watch policy on inflation.

They, however, expect some action on liquidity management with capital inflows still remaining significant.

"With inflationary expectations strong and global oil prices moving upward, the RBI will definitely keep an eye on inflation. However, presently, I feel RBI can afford to wait and watch and may not take any preemptive action," D K Joshi, principal economist and director, Crisil said today.

Inflation has increased to 4.41% as on July 14 as against the week-ago figure of 4.27%.

A week-on-week rise in inflation should not be a matter of concern, said Kolkata-based United Bank's Chairman and Managing Director P K Gupta. "Even with a slight increase, inflation is still within the RBI's comfort zone and below the 4.5% mark," he said.

Economists warned that if money supply continued to expand and global oil prices move up, inflation could become a factor to contend with around October-November.

"International crude oil prices are firm and any increase could pose challenges, going forward," Yes Bank's chief economist Shubhada Rao said, adding "if there are fuel price hikes in the domestic market, inflation could touch the 5% mark. I will certainly not say that inflationary pressures are behind us," she said.

Posted by FR at 11:32 PM  

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