Heightened Vigil Is Required To Anchor Inflation - June 27,2008

The inflation is seen to rise to a new 13-year high of 11.20% for the week ended June 14, against 11.05% in the previous week. This would be the highest level since April 8, 1995. Machinery & transport equipment, iron & steel, fibres and oil seeds are expected to be the major contributors for the rise. Separately, commerce minister Kamal Nath said on June 26 that inflation is expected to peak now and heightened vigil is required to anchor inflation. JP Morgan also said on June 26 that the Reserve Bank of India may further raise rates by 25 bps on July 29. The government and RBI have taken several fiscal and monetary steps to cool inflation, but these measures may also have a slowdown effect on economic expansion. The government is now desperate to streamline the economy and the options are running out. After inflation hit 11per cent and interest rates moved up, policy measures have clearly been exhausted.