The spill over effects of higher food prices are already starting to be felt a core inflation has started rising rapidly. Unless the Reserve Bank of India becomes more proactive, it risks keeping a check on inflation. The RBI will come under increasing pressure to act as inflation rises even further in the next two to three months. The government’s 8% GDP growth projection for FY11 is plausible only at the cost of high inflation well beyond the central bank’s stated tolerance level of 5% - which in turn spells more aggressive back-loaded tightening in H2/FY11. Therefore, we expect slower growth in FY12.(India note 4th March 2010).
RBI forced to begin hiking cycle at emergency meeting on 19th March 2010. Rate up from 4.75% in March 2010 to 8.5% by October 2011. GDP slowed from 8.4% in 2010 to 6.5% in 2011 and 5% in 2012.