The government is going to raise petrol prices on April 1. We shouldn't be surprised. They always wanted to do this after they had presented Budget and the Parliament session was not in progress so that they don't have to face the heat there. I don't think even if Mamata Banerjee, CM of West Bengal and also the head of Trinamool Congress, a major contituent of the ruling alliance UPA, protests the government can't roll back since its finances aren't exactly on a roll. Actually, they are in a mess thanks to rising global oil prices. Oil price hikes cause inflation is something everyone knows. To that now add the increase in service tax and excise and you know that high inflation that was begining to get subdued is all set to make a comeback. Where does that leave RBI in terms of rate cuts? Between a rock and a hard place. If inflation rebounds or remains high, it can't cut rates despite the fact that growth is flagging. I also get a sense of a liquidity crunch all around from anecdotal evidence. It is becoming increasingly clear to me that a rate cut if any will be a small one, say 50 basis points, more towards the end of the year than now. That is not good news for home and car loan borrowers, besides corporates.
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