The Reserve Bank of India is scheduled to meet for an annual review of the monetary policy on May 3, 2011. It is expected that RBI would raise repo and reverse repo rates by 25bps each.
The Annual review will be conducted in the scenario where we have high crude prices and commodity prices, surge in core inflation, domestic activity which signals a slow down, subdued investment activity and global uncertainties. The monetary policy will face severe dilemma; however RBI is expected to focus on rising inflation.
The Inflation figures for the month of March touched the figure of 9% in March, much above RBI’s projection.
The Industrial Production figures are also indicating a slowdown. The Corporate order book also depicts the same.
Yet currently it seems inflation situation outweighs the growth concerns. It is expected that the Central Bank may continue with the gradual tightening, raising both the Repo & Reverse Repo by 25 bps, accompanied by a hawkish statement.
As the full impact of the previous tightening is yet to take effect and the industrial activity slowing it is unlikely that the Central bank may raise the policy rate by 50bps
