Inflation to cross 5.5% by March, rates may go up

Economic think-tank, the Institute of Economic Growth, has forecast inflation to breach the upper range of the Reserve Bank's projection, by March-end, forcing the central bank to harden interest rates further in its next credit policy on January 31.

The widely tracked wholesale prices-based inflation is already close to the threshold of RBI's target of 5.5% for this fiscal. WPI Inflation touched 5.48% during the week ended December 23.

"As inflation is going to be above the targeted level of RBI and growth of money supply is well above 20%, we expect further hike in interest rates in the next review of the credit policy," the Institute said in its Monthly Monitor report.

In a move to ease inflationary pressure, the RBI in December had hiked the Cash Reserve Ratio by 50 basis points and also mopped up liquidity in the short-term money market.

Following this move by the central bank, which was intended to suck out Rs 13,500 crore excess liquidity from the market, many large commercial banks hiked both their lending and deposit rates.

The report said that inflationary expectations still persisted in the economy, despite stable global oil prices.

Crude oil prices have come down to $55 per barrel from a high of over $76 per barrel during August-September last year.

The Monthly Monitor report said, future inflation rates depended on two factors - future monetary policy stance of RBI and the performance of the kharif crop.