Inflation pressures to continue, says RBI

Mumbai, Oct 31: The Reserve Bank of India (RBI) today said the inflation pressures in the country continues to remain even as the recent growth momentum looked set to be maintained this year but it was uncertain if a recent fall in crude prices would be sustained.

Presenting its mid-term review of macroeconomic and monetary developments, the RBI said there was limited spare global crude oil production capacity and a tight supply-demand balance. Oil is India's biggest import and has been one of the biggest sources of domestic inflation in the past two years, although prices have come down from record levels in July.

''Although (oil) prices have eased significantly over the past one month, they still remain quite high,'' it said in the report released just a day before a mid-term review of monetary policy. Its most recent increase was in July when it lifted the rate by 25 basis points to 6.0 percent to check price pressures.

The central bank said headline inflation has remained within its estimate of 5.0-5.5 percent and inflationary expectations have remained stable, reflecting pre-emptive monetary and fiscal policy measures, while annual wholesale price inflation hit a four-month high of 5.26 percent in the 12 months to Oct. 14, edging nearer to the top of the RBI's estimate.

However, analysts maintain that sustained demand for goods could see inflation rate rise by nearly 100 basis points by end-December.

India, which is Asia's fourth-largest economy, has grown at an average 8 percent in the past three years, industrial output rose 9.7 percent in August from a year earlier and analysts have said consumer demand is strong enough to prompt a rate increase.

''Manufactured products inflation has remained relatively moderate so far, although it has edged higher to 4.2 percent, year-on-year as on Oct 7, 2006, from 3.0 percent a year ago,'' the apex bank said.

Further, RBI said buoyancy in manufacturing and services, along with a recovery in domestic stock markets and a positive investment climate suggested recent growth momentum would be maintained in 2006/07.

It estimates the economy will grow at 7.5-8.0 percent this year.

UNI