While India’s budget is set to stoke demand, worsening public finances may crowd out private funding and investment, the central bank (RBI) said in a statement.
At its review meeting on Wednesday, the RBI increased its inflation forecast for Q4 to 5.1 per cent, compared to 4.3-4.7 per cent for the second half.
The Reserve Bank of India (RBI) is likely to keep its policy rate on hold this week, but could toughen its warnings against inflation.
With the latest inflation prints moving up, the Reserve Bank (RBI) is likely to raise its inflation forecast for March and may leave the key rates unchanged.
The rise in inflation, though, is unlikely to translate into higher wages, given subdued demand for jobs in an economy which is forecast to grow at its slowest pace in four years.
India’s annual wholesale price inflation last month increased to 3.59 percent from a year earlier from a provisional 2.60 percent in September.
RBI included the implementation of house rent allowance or HRA, under the 7th Pay Commission (7th CPC) could lead to inflation.
The hike in salary for Central government employees and pensioners may turn out to be a short-lived joy given that rising prices of many commodities could negate the monetary benefits.