RBI indicates tighter monetary policy to contain inflation

New Delhi, Feb 7 (PTI) Worried that the Egypt crisis mayfurther push up crude oil prices, the Reserve Bank todayindicated sticking to its "anti-inflationary" efforts throughtight monetary policy.

"Clearly there is a new risk to oil prices emerging fromthe current situation (in Egypt) and we have to watch that,"RBI Deputy Governor Subir Gokarn told reporters here.

In the wake of these risks, he said the RBI will stick toanti-inflationary measures, which in turn could result in highinterest rate for borrowers of all types of loans.

When asked if the RBI may go for another round of hike inthe short term borrowing and lending rates, Gokaran said "Ourmonetary policy stance is anti-inflationary".

His reaction comes at a time when the headline inflationrose to 8.43 per cent according to December figures and foodinflation went above 17 per cent for the week ended January22.

The situation has further detoriated due to the politicalunrest in Egypt, which has reulted in global crude pricesspiralling to a over two year high.

The oil prices had crossed USD 102 per barrel last weekand experts have expressed concern over further jump as unrestspreads to other countries in the Middle East.

"We had projected in our quarterly review about theupside risk to inflation coming from commodity prices,including energy prices. There is obviously a risk that thesituation will translate into higer commodity prices," headded.

Gokarn however added that the Reserve Bank would for thetime being stick to its estimate of 7 per cent inflationby March end as it had already taken into account the actualprice rise till end of January in its monetary policy reviewlast month.

"What is happening now may be persistent, may betransitory (current high prices)...so it is still in a sense aworry. For the moment we will stay with 7 per cent inflationby end of March," he added.

Gokarn further said that ongoing food inflation is drivenby commodities that are not monsoon senstives. "That suggestthat there is structural element (to inflation)," he added.

The inflation data for January 22 revealed that wheat andcereal prices have moderated over the previous year butvegetables prices soared during the period under review.

Asked about the central bank''s response to the GDPestimate released earlier in the day, Gokarn said, "Ouroutlook for 2010-11 was 8.5 per cent with an upward bias whichreflects the base. It is consistent with the currentprojections (of 8.6 per cent)." PTI PPB JD NKD PC TVS