Referring to the tight norms of RBI, Matthew Circosta, Economist, Moody's Analytics, noticed that the tightened norms though have weakened the investment sharply, the expansion of the private consumption and services continues to take place a high pace.
Ironically, the continuous growth of the private and consumption and services is taking place despite facing decline some decline because of the RBI's increase in interest rates.
Further, the expanding population growth and rise in income also puts a pressure on RBI as well maintain an upward pressure on demand side. Therefore, in order to curd the inflation, it becomes necessary for the central bank to maintain high rate of interest. Seeking the same, RBI has increased it lending rate by 50 basis points leading the interest rate to 7.25% on May 3.
Analyzing the affect of inflation further, Moody concluded that RBI is likely to focus on taking control of the inflation. The upward revision to inflation in association with price hike pressure from domestic fuel and input prices continues to put pressure on RBI.
According to wholesale price index, the above stated pipelines pressure is expected to be ay 9.5-10.5 per cent in the first half of the current financial year, against the nine per cent estimate by RBI. As per Brinda Jagirdar, general manager (economic research), State Bank of India, the inflation has shifted it centre from food products to manufactured products. Therefore, this is further strengthening the supply side, specifically the manufacturing side.