While the Wholesale Price Index inflation has slid to a 3-year low of 7.18%, sparking hopes of a cut in interest rates, but the Retail Price Index continued to grow a worrisome 10.56% in December, led by soaring food prices. All eyes are now on set the RBI for some relief in lending rates during the policy review later this month. So far, the central bank has been reluctant to tinker with lending rates in view of high inflation rates.
The RBI uses monetary tools to check demand and cool down prices. The struggle between falling growth and soaring inflation, which has forced it to keep the rates high seems to have hurt consumption demand.