Credit Policy review around the corner; inflation a major concern

The monetary policy makers will meet in the first week of next month to review the various factors influencing the macroeconomic conditions, and to make the necessary changes in the monetary policy. The domestic economy is at a crucial juncture with respect to the balance between inflation, industrial growth and the monetary policy tightening. The Reserve Bank of India (RBI) has already tightened the monetary policy several times since last year and the interest rates have gone up to a level where they threaten to impact industrial growth.  However, the headline inflation rate is still ruling quite high and is not under control . Due to several domestic as well as international factors the inflation rate calls for more measures and close monitoring by the policymakers.  These are some of the major factors that will be under consideration during the forthcoming monetary policy review in the beginning of next month:  The headline inflation rate in food articles has come down significantly over the last few weeks. However, the broader inflation rate is still ruling high. The Wholesale Price Index (WPI) based inflation rate stood at 8.98 percent for the month of March. This is much higher than the upward revised projection given by the RBI. Analysts believe there are several domestic as well as international factors fuelling the inflation rate. On the domestic front, demand is quite robust and as a result the price rise has spread to broader items that are fuelling the headline inflation rate. On the other hand, the soft monetary policy and other ongoing issues in the international markets are constantly pushing the prices of international commodities up. This is another significant factor contributing to the headline inflation rate. Analysts expect the RBI to maintain its hawkish stance in the forthcoming monetary policy review.  The monsoon is another factor that can influence various macroeconomic parameters and investors should track the developments around it. Since the agriculture sector depends a lot on the monsoon, it's very important for the economy to have a normal and timely monsoon.  A good monsoon can keep a check on food prices and helps the policymakers in fighting the headline inflation.