The RBI has continued with its hawkish monetary stance. For the 8th time since March 2010, the central bank increased the repo rate by 0.25%. It now stands at 6.75%. The reverse repo rate also was hiked by another 0.25% to 5.75%. This was mostly in line with market expectations.
So, why another rate hike, you may ask? Well, the disastrous news flashing from Japan has made us forget two very important things. Oil prices and Middle East politics. While oil prices might have eased a bit lately, since Japan is a large oil consumer, they may be back up very soon. High crude prices are of major concern to the central bank. Troubles in Libya and Bahrain have still not eased. And with threats of a nuclear disaster in Japan, the RBI expects that Japan may substitute thermal energy for nuclear power. This may impact fuel prices further.
What does the future hold? With WPI inflation standing at 8% in mid March 2011, the RBI is still off its 7% inflation target. Thus the watchdog has indicated that it will continue with its current anti-inflationary stance until further notice.
So, why another rate hike, you may ask? Well, the disastrous news flashing from Japan has made us forget two very important things. Oil prices and Middle East politics. While oil prices might have eased a bit lately, since Japan is a large oil consumer, they may be back up very soon. High crude prices are of major concern to the central bank. Troubles in Libya and Bahrain have still not eased. And with threats of a nuclear disaster in Japan, the RBI expects that Japan may substitute thermal energy for nuclear power. This may impact fuel prices further.
What does the future hold? With WPI inflation standing at 8% in mid March 2011, the RBI is still off its 7% inflation target. Thus the watchdog has indicated that it will continue with its current anti-inflationary stance until further notice.
No comments:
Post a Comment