Subsidy can absorb high oil and food price: FM

New Delhi, July 19: Ahead of the Central Bank's monetary policy review, Finance Minister P Chidambaram today said high crude oil and food prices did not necessarily mean monetary policy would be further tightened, as these hikes could be absorbed through higher subsidy.

Mr Chidambaram, however, said the government would keep a close watch on the price situation.

"We will keep a watch on crude and commodity prices and monetary policy will be kept tight. It does not mean that monetary policy will be tighter," Mr Chidambaram told newspersons here.

The key factors pushing inflation are rising food and manufactured prices.

Analysts interpret this to mean that in its monetary policy review on July 31, the RBI will maintain a status quo on interest rates.

"Commodity prices are going up, crude prices are going up. We will keep a watch," Mr Chidambaram said.

Slow growth of the agricultural sector and greater demand emnating from high GDP growth are fuelling food prices.

The widespread speculation is that the government will raise retail prices of petrol and diesel with crude trading close to record highs.

The Minister, however, stated that this did not mean that high global crude prices would translate themselves into high domestic prices.

"Rising crude oil does not necessarily mean higher local fuel prices," Mr Chidambaram said and added that "it means our subsidy bill can go up." Mr Chidambaram has been on record stating that India will maintain a fairly tight monetary policy to stem inflation.

The Central Bank will need to walk a tight rope between keeping inflation within acceptable limits rupee appreciation from hurting the exporters preventing.

UNI