The RBI has in unequivocal terms said people should be prepared to live in a high-inflation regime and has itself revised the inflation rate for March 2011 from 5.5 to seven per cent. Even the growth rate has been maintained at 8.5 per cent, but with an upward bias for 2010-11. This is less than the 8.9 per cent growth witnessed in the first half of 2010-11. Since then the upside risks have increased, RBI governor D. Subbarao said Tuesday.
Dr Subbarao seemed less optimistic on the two most important fronts — inflation and economic growth — than he had ever been. In fact, for the first time ever in a credit policy, the governor said, “consumers and inve-stors” will have to deal with “risks from inflation, current account deficit, and fiscal situation” that is contributing to “an increase in uncertainty about economic stability”. The stock market closed negative after the policy announcement. In spite of the dire predictions, the RBI raised the repo and reverse repo rates by a mere quarter per cent each.