RBI expects 7 pc inflation by March-end

Mumbai, Jan 25 (PTI) The Reserve Bank today upped theinflation projection to 7 per cent by March-end, from theearlier estimated 5.5 per cent and warned against a possiblespill over of high food and energy prices to a moregeneralised inflation.

Earlier, the apex bank had projected inflation at 5.5 percent by March 2011 and the latest higher estimate is onaccount of high food, fuel prices high and persistent demandpressures building up in the economy.

The overall inflation for December shot up to 8.43 percent on high prices of food items, from 7.48 per cent inNovember.

Food inflation remained in double digit through outDecember and was 15.52 per cent for the week ended January 8.

It had touched a high of 18.32 per cent in December 25.

"As high inflation persists, the prospect of it spillingover to the general inflation us rapidly becoming a reality,"the RBI said, while announcing the third quarter monetarypolicy review here.

It said prices of some commodities rose sharply in therecent period even as global recovery was fragile. "Shouldthese trends continue, they will impact inflation,domestically and globally."

Asserting that the current demand-supply mismatch forsome commodities will persist, it said, "...The baselineprojection for WPI inflation for March 2011 is revised upwardsto 7 per cent from 5.5 per cent."

To cool inflation, the central bank today raisedshort-term lending (repo) rates and borrowing (reverse repo)rate by 0.25 per cent (25 basis points) each.

The RBI said the food inflation is likely to remain highin the near term because of demand-supply mismatches inseveral non-cereal food items like pulses, oilseeds, eggs,fish, meat and milk.

"While the impact of transitory factors is expected towane, the price pressures on account of demand-supplyimbalances in respect of some commodities will persist," itsaid.

It said the food inflation has been rising for over twoyears now and the increase has been sharp in the recentperiod. "This cannot but have some spill-over effects ongeneralised inflation...," it said.

The central bank said there can be an up to 9 basispoints impact on WPI-inflation owing to fuel and aviationturbine fuel (ATF) price hike.

Earlier in January, the oil marketing companies hadraised petrol prices by Rs Rs 2.50-Rs 2.54 per litre and ATFprices by about 2 per cent or Rs 948.5 per kilolitre.