......We seem to be moving towards stagflation, with growth at 5.3 percent and inflation (WPI) at more than 7 percent. In fact, CPI inflation for May came in at 10.36 percent, justifying the RBI’s latest stance. Even if the RBI had cut rates, there is doubt as to what extent banks would have followed it. Expectations of money printing abroad may have given the RBI some room to continue its crusade against inflation and resist pressure to cut rates immediately to ease liquidity. Also, as rightly mentioned by it, there is a risk of commodity prices rising and thus adding to inflationary pressures, if developed markets start printing money once again. The point is, how long would it wait for Quantitative Easing (QE) abroad, before finally succumbing to the pressure and cut rates? A game of brinksmanship seems to be going on in between the RBI and the government. Let’s see who blinks first.
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