Global consultant firm Ernst & Young said that it expects inflation to climb to 14 per cent in July from 10.16 per cent in May, spurring the RBI to raise short-term rates in its July 27 monetary review for checking spiralling prices.
"Inflation will go up due to seasonality. Besides this, the fuel prices increase will also add to inflation. I expect it to reach 14 per cent by July. It will remain at that level in August before easing in September," Ernst & Young (E&Y) Financial Services Partner Ashvin Parekh said.
He further said that the RBI may further hike both repo and reverse repo rates by 25 basis points each in its July 27 policy to tame inflation.
On Friday, the Reserve Bank had -- in an unscheduled announcement -- raised key short-term policy rates by 25 basis points to tame the double-digit inflation.
At present, short-term lending (repo) and short-term borrowing (reverse repo) stands at 5.50 per cent and 4 per cent respectively.
The wholesale price-based inflation crossed double digits (10.16 per cent provisionally) in May, but, as per final figures, the rate of price rise has been 11 per cent or more since February. Food inflation eased to 12.92 per cent in the third week of June, from over 16 per cent.
{{/usCountry}}The wholesale price-based inflation crossed double digits (10.16 per cent provisionally) in May, but, as per final figures, the rate of price rise has been 11 per cent or more since February. Food inflation eased to 12.92 per cent in the third week of June, from over 16 per cent.
{{/usCountry}}RBI had earlier, in April, increased the repo and reverse-repo rates by 25 basis points.
Parekh further said that the government and the RBI should do a balancing act to address issues relating to growth as well as inflation.
"The cost of stimulus should not hurt economy. Balancing act between growth and inflation is needed," he added.
The Indian economy could achieve a growth rate of 8.5 per cent in the current fiscal, Parekh said, adding that the manufacturing as well as services sectors are likely to achieve good growth.
After growing at over 9 per cent in the three preceding years, India's economic growth slipped to 6.7 per cent in 2008-09.
However, India achieved 7.4 per cent growth rate in the last fiscal, primarily due to three fiscal stimulus packages by the government for propping up the economy.