Expect inflation to remain high and sticky through the year as the pressure on core inflation intensifies, even as the winter crop hits the market and eases food prices. Inflationary pressures from non-tradeable items are rising rapidly.
An analysis of the city level data proves that inflationary pressures are widespread across different tiers. In fact inflationary pressures are higher in small cities than in the main metros, indicating a broad-based growth process, and making the case for continued policy action even stronger.
We continue to expect a total of 150 bp of rate hikes by the Reserve Bank of India in 2010, and a move in the effective policy rate from the reverse repo to the repo rate, constituting a further 150 bp in tightening. Does the Government really has the will to tackle inflation and save the so called “Aam Aadmi” ?