Food inflation has come in at 9.01% for the week ended May 28 which is at 2 months high. The RBI, in its monetary policy for 2011-12, had projected that overall inflation would average 9% during the first half of this fiscal. However such high inflation numbers for food prices might compell RBI to further hike the key policy rates at least by 25 bps when they meet on 16th june for policy review.
High interest rates have already started impacting the growth of the economy and any further hike in interest rates will decelerate the economy further.
25 bps is already priced in the markets currently but any negative surprise will spook the market badly. However if the key policy rates are left unchanged on 16th June, the market should positively react.
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