We know that RBI has the power to propel growth and now problems are compounding for the govt as India's wholesale price index (WPI) has risen to 7.55 per cent in May 2012. The rise in inflation from 7.23 per cent in April is due to increase in both food and fuel prices. Now this hike has dashed hopes of the much-anticipated rate cut by the RBI on 18th June.
Rate cut is a razor edged weapon as at one hand it strokes inflation and on other hand it can give impetus to growth. Now it needs to be seen that despite high inflation, will govt issue directions to RBI to execute an interest rate cut next week i.e. on 18 June. The Market participants are expecting a 100 basis points cut and we need to see that how much market can oblige the traders and investors alike to propel the growth.
