Key 2010 issues that will see us in 2011
Another year has come to an end. While some of the good and bad will be left behind once the clock strikes midnight there will be some issues we will carry into the next year. We are trying to take a look at some of the prominent issues that we will be carrying to the next year.
Inflation: This is perhaps one of the most complicated issues to have dogged the government, the central bank and the masses alike. The RBI in 2010 waged a severe battle against inflation that not only touched double digits but also stubbornly refused to cool down. In the process the central bank set a record of sorts with six interest rate hikes spanning the year.
Before cooling down to about 8.5% levels, inflation hit a high of over 11% in the month of April. For almost half of the year, between February and July, inflation consistently hovered between 10-11%. Even though the latest inflation numbers indicate to a considerable slow down from the highs witnessed earlier in the year, it still remains above RBI'S comfort zone.
Needless to say the issue is in no hurry to die down any time soon. We may very well be privy to inflation and a whole host of issues that come with it well into 2011. The RBI, which has raised borrowing costs six times in 2010, is widely expected to up the rates one more time by end-March.
The RBI has said that even though inflation has moderated, inflationary pressures persist both from domestic demand and higher global commodity prices. Additionally, the pace of decline in food price inflation has been slower than expected due largely to structural factors. The Central Bank believes that there may be a risk of rising international commodity prices spilling over into domestic inflation. Going ahead, rising domestic input costs for the manufacturing sector combined with aggregate demand pressures could weigh on domestic inflation, thereby posing a risk to Reserve Bank's forecast of 5.5% inflation by March 2011.
Commodities: Despite the slow recovery and slack capacity in advanced economies, international commodity prices such as oil, food, industrial inputs and metals have risen noticeably in recent months. The RBI has said that this reflects the strength of demand and higher commodity prices, which in turn has led to inflation creeping up in most emerging market economies (EMEs).
The rebound in commodity prices, which began at the onset of 2009 continued into 2010, with a recovery in the global economy. Commodity prices, which have been on a high through the year, and are expected to see further increase, will also fuel the inflationary pressures in the short term.
Gold has been on a rise for over a year now mainly fueled by the uncertainty in the global markets and the switching of sentiments to commodities. Similarly, in line with forecast, crude oil has touched USD 90. This is cause for concern as higher oil prices would mean wider trade deficit. The price of silver, which has been the leading performer in metals in 2010, is believed to continue to see a rise in 2011.
Questions and Answers
RBI has been considered a conservative policy maker. However, the 2007 financial crisis and following economic recession proved the strength of its policy
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