COUNTER VIEW: Another interest rate hike necessary

Even though many argue that RBI should adopt a wait and watch approach during this quarterly review of its monetary policy by not hiking interest rates, that may not be possible as inflation is a primary threat to the economy. Inflation is still way beyond tolerance levels and is likely to stay that way for months to come. Oil prices may have come down in the last few days, but at $120 a barrel, the price of crude remains high.What is more worrying is that prices at the pump are still not market-linked and are likely to remain so, causing further pressure on the economic management. Moreover, the monsoons may not be as good as expected. That is sure to cause a further rise in prices of foodgrain, pulses and other food items before long.
All these factors point to the fact that inflation may shoot up in the coming months. That would require a fresh round of interest rate hikes by the central bank. It might choke off growth a bit, especially in interest- sensitive sectors, but it is a price we may have to pay for containing inflation. Central banks around the world have focused on curbing inflation. Even the Federal Reserve, the US central bank which has largely been concerned with recession all this while, has of late moved to making inflation its chief concern.
An appreciation of the rupee is a tool that can help bring down the landed prices of imported items, including oil, thus boosting supply at lower prices. But a more expensive rupee will affect exports. Since exports contribute strongly to the growth of the economy, that would have the effect of choking off growth further.
Tightening money supply thus remains the only option. Inflation at current levels hurts people, creates economic instability and political disruption. Runaway inflation is an unannounced and painful taxation on people. It may not be the government's fault; indeed, most of it seems to be imported.
But our monetary managers must take urgent domestic action to minimise inflation's nasty after-effects.
VIEW: It should wait and watch