Inflation has also lead to a decrease in the bond prices and an increase in the yields. This on the other hand, has had an effect on the value of bank investment in bonds which has been eroded. The bankers feel that they will have to make provisions in their first quarter results to accommodate these developments.

Asked about the RBI’s response to the meeting, Sinor said that the central bank executives hear out bankers but do not indicate policy measures. Hence, the bankers can not be sure about any further monetary policy steps to stem inflationary expectations.

In the past, the central bank has repeatedly warned of the global price rise and advised society to find ways to live with it. The bank has also indicated that it is not a problem that will last a few months; hence, there should not be much to worry about.

The RBI has hiked the repo rate and CRR repeatedly over the past 2 months. The last hike in the repo rate and CRR came on 24th June when RBI hiked the two by 50 basis points each.

The repo rate, or the rate at which it lends to banks under the liquidity adjustment facility, has been raised by 75 basis points to 8.5 per cent, since last April. In the same time, the cash reserve ratio has been increased by 125 basis points and will touch 8.75 per cent later this month. However, with a continuous rise in inflation rate, more monetary tightening measures cannot be ruled out in the months ahead.

The government which was earlier resisting any increase in lending rates, fearing slowdown has also passed on the responsibility of combating inflation to the RBI and said that monetary policy is the first line of defense against inflation. It has also openly supported the dual hike by the RBI, saying it would not reduce investment opportunities.