RBI hints rates unlikely to fall in future

Reserve Bank today said its future policy actions would be guided by inflationary expectations.

Concerned over deteriorating price situation,Reserve Bank today said its future policy actions would be guided by inflationary expectations.

8220;8230; both headline and retail inflation rates are rising,which have a bearing on inflation expectations. Future actions will depend on a continuing assessment of external and domestic developments that contribute to lowering inflation risk,8221; RBI said in its mid-quarterly policy review.

It said that although core inflation is showing signs of easing,price rice in the wholesale and retail levels is still a matter of concern.

8220;Notwithstanding the moderation in core inflation,the persistence of overall inflation both at the wholesale and retail levels,in the face of significant growth slowdown,points to serious supply bottlenecks and sticky inflation expectations,8221; it said.

While retail inflation,represented by Consumer Price Index CPI,moved up marginally to 10.36 per cent in May,inflation based on Wholesale Price Index WPI data released last week,showed a moderate rise to 7.55 per cent during the same month.

Further,it said,while international crude oil prices were reigning high,the same was not reflected in the domestic prices,due to which the consumption of petroleum products remained strong preventing the much-needed adjustment in aggregate demand.

8220;The consequent subsidy burden on the government is crowding out public investment at a time when reviving investment,both public and private,is a critical imperative,8221; it said.

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It added that with food prices contributing heavily to headline inflation,the performance of the south-west monsoon would also play a role in determining inflationary conditions over the course of the current year.

Against market expectations,the RBI today kept short-term lending rate repo unchanged at 8 per cent and also maintained Cash Reserve Ratio CRR at 4.75 per cent in its policy review.

Experts were expecting the Reserve Bank to cut the lending rate repo by at least 0.25 per cent and were also looking forward to further cut in CRR to infuse more liquidity in the financial system.