Inflation to be above 6% during Jan-March: IEG

Economic think-tank, Institute of Economic Growth said on Wednesday it expected widely tracked wholesale prices-based inflation to hover above 6 per cent for the present quarter despite RBI's effort to curb money supply and inflation by making borrowings from it costlier for banks.

In fact, the consumer prices-based inflation which affects the common man more is expected to hover between 7.7-8.2 per cent during the period, IEG said in its Monthly Monitor report for January 2007.

The economic body said the hardening interest rates were yet to peak and forecast the lending rates to marginally increase in the January-March period.

IEG said as rise in inflation was due to both supply and demand factors, it expected inflation rate to be at its current level in the short-run.

Inflation had shot up to a over two-year-high of 6.58 per cent for the week ended January 27. Concerned over rising prices, RBI had hiked its short-term lending (repo) rate by 0.25 per cent to 7.5

per cent in its monetary policy review last month.

RBI had hiked provisioning requirement for various loans, which was expected to make advances dearer. "This move is expected to put pressure on commercial banks to hike their deposit rates and hence the lending rates.... the current upward movement in the interest rate cycles is yet to peak," the economic think tank said in the report.

It forecast the Wholesale Price-based Inflation to be 6.2 per cent, 6.3 per cent and 6.3 per cent for January, February and March, respectively. It projected the CPI inflation rate to be 8.2 per cent, 8 per cent and 7.7 per cent in these three months.