With the April one credit policy announcement not far off the guessing game of whether RBI will keep interest rates unchanged, is getting hotter, bolstered by the fall in the wholesale price index for February to 4.68 per cent. This is the third successive month in which the WPI has fallen. Even the consumer price index (CPI) that the RBI relies on for formulating monetary policy had moderated to a 25 month low in February, and is closer to RBI’s comfort zone.
However, core inflation has surged in February and this could negate the drop in WPI/CPI inflation. There is also apprehension that the prices of onions and potatoes that contributed to the steep drop in food inflation could go up because of the unseasonal rains in onion growing centres. Imported inflation also cannot be ruled out.
Industry is restless as it feels that growth is being stifled by high interest rates. A recent poll of CEOs by FICCI revealed that 71 per cent of them said that high interest rates are the major cause of no fresh investments. This view, however, is not shared by the RBI and many economists, who feel that interest rates may be only one of the reasons, and not the main one. The real causes are the delay in decision making and issues on the supply side.
The only relief that industry may expect is the relegation of the tightening monetary policy to the back burner for now.
