R.B.I's Mid term Policy: Investor and Inflation: Cross road

The Reserve Bank of India is again Meeting on 26th of this month and shall review the  economic and Financials, during the Mid Policy Meet. The Markets are Hoping that, with the Inflation rate hovering around 9%+, the tightening Cycle to continue. The Poll in India, indicate a rise in interest rates from 0 to 75 %  with a tightening bias.
A quick Preview :
The Latest inflation figures of 9% + do indicate an inflation rate,  much above the normal accepted range of 3.5% to 5.5%.  More over, this inflation rate is over Y-O-Y on  a very high Base of 2010 and are  indicating,  ' Entrenched Inflation'  across the Board.  The Inflation Expectations, remains high, viewing the impending pass over by Indian Oil and gas Sector of International Crude Oil Prices. The Coupon rate for the 10 year GOI Bonds is trading in the Band of 8.25% to 8.40%. Thus, the ' Real Interest Rate' is still in a negative territory. While the Brent Crude is again trading @ $ 115- 120 per barrel.
Some one,  can blame R.B.I for it's ' Baby Step ' Policies of stemming inflation in the beginning of this year. The Rising Growth Indicators, coupled with high inflation in all the Economic sectors should have alerted R.B.I. , that Indian Economic System was 'Over-Heated. The sluggish Infrastructure development was incommensurable to G.D.P  growth.The High Density Population,  ' Accommodative Monetary Policies'   in India and Abroad, the rising trend of global consumption and ' Socio-political Uncertainties' were clearly enticing the Inflationary pressures and inflation expectations, in January and February 2011. Albeit, in Denial of all, RBI  preferred the ' Soft Gloves' and thereafter, succumbed to the inflation pressures. The inflation Expectations rose to such a high that, during the Press Meet,on May 3rd,  RBI Governor Dr Subbarao, justified the rise of 0.50% by alluding to ' the pending rise in Diesel and Gas prices'.  In-spite of no fuel rise in mid-June,  RBI still raised the rates by another 0.25%, and went on record by suggesting to  the Indian banks to restrain the ' Hike' and Pass over.
The Set up of the Meet:
Undoubtedly, the ' International debt' defaults and particularly ' US Debt Limit and Budget'  issues are still looming large, and, may simmer the Debt markets in the foreseeable future. On June 23rd, the rising Crude Oil Prices rally was shot down by International Energy Agency ( I.E.A.) by releasing the ' Emergency' stock, in the Market. The ' Backwardation'  in Dubai Crude Market vanished and the speculators were hit on knees. However, the Geo-political uncertainties like Libya, Egypt and Syria, the European Union's unstable Umbrella persist. The Recent revision in interest rates by E.U. and End of QE-2, With No QE-3 have embarked the ' New Global Tightening Cycle'. However, the Effective rates in US remains at .25%  but, China remains firm on its tightening Path. Thus, the Pacific divides the Growth and Interest Rates, on two shores, with an exception of Japan. Latest economic data, however still do not show the worthy improvement in Housing and Employment situation in US and Nor does it show any high degree of de acceleration in China and India.
At the Turn of this Month, Many Indian banks have raised the Prime Lending rates and have appealed for R.B.I. to refrain from further hikes. The Government of India has recently pre-pone the September Debt issue to August, raising many eyebrows. While, the Monsoon has picked up in recent times, which many expect to cool earth and food prices. However, the ' High Procurement Prices' assured by government in May, this year may still act wheels for higher food Prices.
Previous R.B.I Governor, Dr. Y.V. Reddy has recently suggested to ' A Pause'  raising the interest rates, and advised R.B.I. to wait till the prevalent hiked interest rates to  have effects on Economy. The Recent Flash PMI by ' Markit' Show China's PMI going under 50, which is termed as recessionary. Bankers suggest that,  current Credit Demand to falter in the lean credit period till the festivals season starting from September. The Credit demand now hovers around 18-20%, which may cool off.
The Investor and Inflation :
This difficult and uncertain phase prompted me to refer, ' The Intelligent Investor'.  Benjamin Graham in topic about, '' The Investor and Inflation'' made following closing remarks, ' Just Because of the uncertainties of the future the Investor cannot afford to put all his funds, into one Basket. Neither in the Bond Basket, despite the unprecedentedly  high returns, that Bonds have recently offered, nor in the Stock Basket, despite the Prospect of continuing inflation". He advises the balancing of the Investor's Fund between bond and equity to his risk preferences.
The Markets seems to have factored the 0.25% hike  in Interest rates, but  shall " Listen" to R.B.I. Talks,with both ears. The  Classic Catch-22 of Growth and Inflation remains as a traction for Monetary Policy and Economy, in general. The Investors may stand to benefit by apportioning funds,  between Bonds and Equity investments to its finest for sound sleep.