The Slowdown Scare

On Friday, when correspondents hounded Subir Gokarn, Deputy Governor, Reserve Bank of India, in New Delhi for his reaction to the ‘good’ 8.8 per cent growth in industrial production, he cryptically replied, “Good for whom?” He would just hope that the rebound in output after a slowing trend over the last three months is freak. The RBI has been aggressively tightening its monetary stance since mid-March 2010—it hiked the repo rate (the rate at which the RBI lends to banks) 11 times, or a cumulative 475 points, over the last 15 months—to pull down demand in its sustained, yet unsuccessful, battle against inflation.  Despite all these hikes, inflation continues to remain stubbornly high, in fact flirting with double-digit numbers—headline inflation rose to 9.4 per cent in June and food inflation almost touched 10 per cent for the week-ended July 30 from a year ago. In fact, according to Thursday’s RBI survey of 4,000 households across 10 cities, expectations continue to run high—they think inflation will rise to 12.9 per cent over the next one year.  

IE