The recent cut in prices of petrol and diesel had the desired impact on prices, with the inflation rate declining to 5.16%.The wholesale prices-based annual inflation rate declined to 5.16 per cent for the week ended December 2, from 5.30% and 5.45% in the two previous weeks.Concerned over inflation rising to an 18-month high of 5.45% in the third week of November leading to public discontent, the government slashed petrol and diesel prices by Rs 2 and Re 1 per litre respectively on November 29, taking advantage of a moderation of global oil prices.Aware that the fuel price cut alone would not be enough to contain prices, the Reserve Bank has announced a 0.5% hike in the Cash Reserve Ratio (CRR), the percentage of deposits banks park with the central bank, on December 8 to suck out some liquidity to moderate credit growth to contain prices.RBI has raised short term interest rates four times this year, besides the CRR hike, to contain inflation in the projected range of 5 to 5.5% for FY07.The government has also been forced to make some relaxations on imports of essential food items to ease supply side constraints.
