Dear Comrades,
Loans are set to get costlier after key interest rates were hiked by 25 basis
points for the 12th time since March 2010. The price of petrol was raised on
Thursday -- the 10th such increase since June 2010. If that wasn't painful
enough, there is a chance that LPG price will go
up.
The Reserve Bank of India (RBI) said on Friday after its mid-quarter review
of the monetary policy that the petrol price hike effected by the oil marketing
companies will marginally add to upward pressures on headline inflation.
"Oil marketing companies raised the price of petrol by Rs 3.14 per litre with
effect from Sep 16, 2011. This will have a direct impact of 7 basis points to
WPI inflation, in addition to indirect impact with a lag," the RBI said while
hiking repo rate by 25 basis points.
The repurchase rate (repo), or the interest the central bank levies on
short-term borrowing by commercial banks, has been raised to 8.25% from 8%.
Automatically, the reverse repurchase rate, or interest on short-term
lending, gets hiked to 7.25% from 7%, since the central bank felt inflation
levels remain well above its comfort zone.
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Headline inflation based on the wholesale price index (WPI) nudged double
digit levels at 9.8% in August, rising from 9.2% in the previous month.
Inflation in respect of primary articles and fuel groups also edged up in
August.
Petrol prices were hiked for the 10th time since June 2010 from Friday as
India's oil retailers sought to pass most of the burden of the falling value of
the rupee and high crude prices on to consumers.
LPG next?
A ministerial group was scheduled to consider limiting supply and hike in
price of liquefied petroleum gas (LPG) on Friday but its meeting was deferred
indefinitely due to political pressure.
The Empowered Group of Ministers (EGoM) headed by finance minister Pranab
Mukherjee was scheduled to consider the recommendations of a task force on LPG
and kerosene pricing.
The panel has proposed that every household should be given only four to six
LPG cylinders per year at a subsidised price and additional cylinders should be
supplied on market price. Average households use 20 to 30 LPG cylinders each
year.
An LPG cylinder is sold at a subsidised price of Rs 395 in Delhi while the
market price is around Rs 700 per cylinder.
The EGoM meeting may have been deferred because of growing protests againt
the petrol price hike. The Bharatiya Janata Party has called the petrol price
hike a result the government's "direction-less" economic policy.
"The repeated increase in prices of petrol and diesel were affecting the
middle classes and the lower classes the most. Prices of daily need items would
also increase because of the increase in oil prices," said BJP leader Rajnath
Singh.
"The repeated increase in prices of petrol and diesel were affecting the
middle classes and the lower classes the most. Prices of daily need items would
also increase because of the increase in oil prices," he said.
And the RBI's rate hikes have not impressed the industry.
"Even as RBI justifies this rate hike to dampen inflationary expectations, it
is difficult to fathom that this will be achieved when a cumulative rate hike of
325 basis points since March 2010 could not achieve this objective," said Ficci
secretary general Rajiv Kumar.
Assocham expressed a similar view that successive rate hikes by the central
bank have not been able to control inflation.
(With inputs from IANS and PTI)
Mumbai, September 16, 2011 21:54 IST Hindustan Times
