Will the party last? That is the question uppermost in the minds of market watchers as the WPI inflation for August is pegged at a high 7.55 per cent beating the analysts’ poll by nearly 0.5 per cent.

What makes this figure significant is that it is a pre-diesel price hike data and this might go up when the impact of the fuel price hike is factored in future.

With inflation control being a prime concern for the RBI, the question is whether the RBI Governor would bite the bullet and lower the rates next week or would take a cautious approach and wait for clear signals of inflation easing before initiating steps to moderate interest rates.

The market was still holding with the Sensex up by 367 points at 18,388 and the Nifty was up by 115 points at 5,550. However, the question is will the euphoria be sustained.

The markets had taken heart from the developments in Europe and the announcement made by the US Federal Reserve and believed that it was a question of time before the RBI stepped in by easing interest rates.

But the high rate of inflation might make the central bank to take a pause and that may be difficult for the market to digest!

The RBI might take a cautious approach because the hike in diesel prices would push up the transportation cost, adding to the inflationary pressure further. But if there is no rate cut, will there be some relief in other areas like CRR? The wait may be over on Monday.

(This article was published on September 14, 2012)
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