Inflation in India has hit its 7 years high at 8.75% (for the week ended 31 May 2008) and is expected to go even further up. This rising inflation is the biggest problem currently the government and RBI is trying to tackle.
Recently RBI even cut the Repo rates (rate at which government lends money to banks for short term (overnight)) to reduce the liquidity in the market.
Worst is still to come as Indian Government increases fuel prices recently which will reflect in the next weeks inflation figures. I am expecting it to cross the figure of 9% for sure. The inflation was at 8.41% for the week before this.
So what is that the Government and RBI are planning to do? May some reduction in import duties, hike in export duty, further increase in repo rate and CRR. I am strongly expecting a hike in CRR to further suck the liquidity from the market. But this will hurt housing and auto segment in India very badly due to further increase in loan rates.