RBI policy flags inflation concerns

The RBI may start withdrawing liquidity from the system by end of 2009 begin raising rates in early 2010, Goldman economist Tushar Poddar wrote.

“In our view, the rate decision and policy statement signals a move away from a sole focus on boosting demand to giving more weight to inflation,” it said in the report.

Clear message

“There is a clear message to the government to get its fiscal house in order, by not only indicating deficit reduction targets but giving out details of adjustment on the revenue and expenditure front,” Goldman said.

Goldman expects GDP growth for the financial year of 5.8 percent, in line with RBI’s forecast of six per cent, and end-March inflation at 6.5 per cent, higher than RBI’s target of 5 percent, which it raised from four per cent forecast in April.

Policy rates hike seen next year

RBI will begin hiking policy rates next year to manage inflationary expectations, Citigroup Global Markets said in note on Tuesday.  At its quarterly policy review, the RBI kept key rates unchanged but said it will have to reverse expansionary steps to subdue price pressures and preserve growth in future.