A Hawkish Policy Needed

Inflation, as measured by the consumer price index (CPI), more than doubled in 2004/05 to an eight-year high of 9.3%. Rising global oil prices and strong domestic demand - largely fed by the boom in private-sector credit - continue to fuel price pressures. Negative real interest rates have led to a surge in bank credit to the private sector. BMI believes an expansionary fiscal policy, high global oil prices and the large monetary overhang will make it difficult for the central bank to contain inflation in 2005/2006. We project inflation will decline only marginally to 8.0% in 2005/2006; however, an

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