Catch 22

RBI has not been much appraised off late by all and sundry about its role in capping inflation [let’s leave curbing it alone for a while], making yesterday a little cautious.

A 25 bps hike each in the short-term lending and borrowing rates and CRR [now 6%] to suck out about $ 2.5 Bn liquidity but cautiously not enough to corner borrowing assuring growth impetus for the industry. This seemed in line with street’s expectation showing a rather flatish response [most were happy going by flat is higher than a dip]. Further, 25 bps hike also made for repo [now 5.25%] and rev. repo [3.75%] and bank rate remains the same 6%.

As for prospects, the Central Bank foresees growth projections at an optimistic 8% for the f.y. and 2010 GDP growth per expectation shows between 7.2 to 7.5% and inflation expectations reach 5.5% for the yr and medium term at 3%.

All said and done, though conservative the policy looks good per dilemma between RBI’s inflationary expectations vis-à-vis those of the MoF. With demand building up and supply’s under pressure the 25 bps hike looks welcomed but against the inflation story a conservative 50 bps looked in the making- catch 22 indeed......now you know where from Hamlet got the "to be or not to be is the question".