Amid deteriorating condition of Indian economy, the Reserve Bank of India is likely to cut key lending rates by 25 to 50 basis points (bps) on Monday in its mid-quarter review of monetary policy for fiscal year 2012-13 in order to boost economical growth.
The recently released Index of Industrial Production (IIP) data showed India's industry grew at meager .01% in April while World Bank in its release has reported that India will grow at 5.3%, much below from India's expected growth rate of 6.9%.
However, on the contrary, the Wholesale Price Index (WPI) data, the basket of foods and essential commodities has showed more gloomy picture as the inflation for the last week of month of May rose highly after a gap of six month to 7.55% as against previous month's 7.23% putting pressure on Central Bank to curb inflation.
The food index jumped most to 10.74% in May in the comparison of April's 8.25% on the basis of price shoot up in vegetables, pulses, milk, egg, meat and fishes, which pinched the pocket of common men.
This is a situation of dilemma for Central Bank, as expert believes as India's annual gross domestic product (GDP) has dipped to a nine-year low of 5.3 percent in the last quarter of the 2011-12 fiscal while Inflation is skyrocketing.
If RBI cut the Cash Reserve Ratio (CRR) - a slice of amount banks have to part with the Central Bank - by 25 to 50 bps, it will raise liquidity in the system but there is also a possibility that it will also raise inflation.
RBI will have to maintain the balance in both side to boost growth while keep inflation under pressure.
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