All eyes wlil be set on Reserve Bank of India governor D Subbarao on Monday when he announces the mid-quarter monetary policy review.
Will the RBI give some reprieve by scaling down repo rates, keep them unchanged or hike them? Whether it is going to give a push to the reforms set in motion by the Prime Minister, Dr Manmohan Singh in the last few days remains to be seen.
However, reaching at a decision will not be easy for the governor in view of the Rs 5 increase in price of diesel, which is going to add to the inflationary woes. This rate hike will lead to at least one percent increase in inflation, feel the experts.
Subbarao has been in the eye of the storm for increasing repo rate, the rate at which the RBI lends to the banks, several notches in the recent past.
Commodity prices are on their way up around the globe. Gold is at an all time high and is expected to go further up given the approaching wedding season. Same is the case with metal prices, which remain on a song.
Crude oil price remains stubbornly high and may keep on rising further. The looming conflict between Israel and Iran will send the crude price soaring. The positive impact of increase in diesel price may be negated by the ever increasing price of crude oil and falling rupee.
It is highly likely, therefore, that the governor may decide to adopt a wait and watch strategy and leave the repo rate unchanged.
The government has claimed that increase in diesel price will save Rs 20,300 crore in the current year. But much of the saving will be offset by increase in crude prices, it seems.