India’s wholesale price index-based annual inflation rate for the week ended 14 June 2007 jumped a notch from last week’s 11.05 per cent to reach 11.42 per cent. Though the rise is modest, the fact that at this level, inflation rate is far above the comfort level of 5.5 per cent as set by the Reserve Bank of India has once again triggered speculation regarding whether the central bank will again raise its key interest rates or not. Experts believe it will, and the coming weeks can see further hikes in the repo rate — the key rate at which the RBI lends to commercial banks — as well as the cash reserve requirement — the ratio of their reserves that commercial banks are required to keep with the RBI. The Reserve Bank last raised these rates earlier this week on Tuesday night by 50 basis points each. Such high levels of inflation have put great strain on the coalition as it struggles with a problem that has ballooned into a major crisis over the past few months. The government has been taking strict measures to curtail price rise, including a ban on futures trading in a number of commodities such as wheat, rice, soy and chick peas as also curbs on exports of rice and cut in duties on crude imports. However, Subhasis Gangopadhyay, the FM’s economic adviser, said inflation would linger in the double-digit range for some time even if prices were to stabilise and that the government could not be expected to take action just because inflation is growing by two digits.
