Riding on governmental policies and consumer spending, the country’s economy registered the fastest growth rate in the previous half-year during March to take the quarter growth rate to 8.6% and annual growth rate to 7.4%. This went a tad beyond the estimate of 7.2%.
The manufacturing sector kept up the good show by growing the fastest for the last two years in May, propped up by the excellent performance of the economy and consistent rise in new orders and output. Automakers posted a healthy growth rate in sales during May, despite their stocks faring badly in the wake of the European debt crisis.
All these may provide the Reserve Bank of India with enough confidence to hike its policy rates to contain the ever-mounting inflation rates. Earlier, the Europe crisis was suspected to restrain the RBI from carrying out a raise between quarterly reviews. The next review is scheduled to be held in the last week of July.
The RBI has already raised the policy rates by 50 basis points in March to mellow the effects of inflation. Economists expect the central bank to go for a 25 basis point increase during its next policy review.
Duvvuri Subbarao, governor, RBI said, “Inflation is not at peak level. It is still higher than we would like it.”
The arrival of monsoon on schedule and forecast of a near-normal monsoon this year may also help the cause of rate hike. However, the policymakers are keeping a close watch on how the monsoon performs before taking the final call.
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