Taming inflation a predominant objective: RBI ahead of policy

Posted By: Pti
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Mumbai, Jan 24 (PTI) Indicating a hike in key policyrates tomorrow, the Reserve Bank of India has said containinginflation would be its top priority as rising prices couldderail growth.

The RBI would announce its third quarter monetary policytomorrow amid speculation that it may increase short-termlending (repo) and borrowing (reverse repo) rates rangingbetween 25-50 basis points.

Even as the economy grew by 8.9 per cent in the firsthalf of the current fiscal, inflation, which increased to 8.43per cent in December, has remained an area of concern.

"While downside risks to growth have receded, upsiderisks to inflation have increased," the RBI said addingcontaining inflation will have to be the predominant objectiveof monetary policy in the near term.

RBI, in its macroeconomic and monetary development reportahead of quarterly review of monetary policy, also warned thatpersistent high inflation could endanger the growth objectiveand also increases risks to inclusive growth.

RBI, since March 2010, has increased the policy rates sixtimes to anchor inflationary expectation and check rate ofprice rise.

"Conventional wisdom says that there should be at least25 basis point hike in interest rate," State Bank of IndiaChairman O P Bhatt had said last week.

Despite moderating for two weeks, food inflation is stillvery high at 15.52 per cent on account of rising prices ofessential items like vegetables, particularly onion andtomato, fruits, milk and eggs.

A day before he met RBI Governor D Subbarao on January20, Finance Minister Pranab Mukherjee had expressed concernover food inflation saying, "some of the vegetable prices arestill high."

Though analysts are not sure whether any furthertightening of interest rate can check the price rise, thecentral bank seems to have few options but hike rates.

Endorsing the widespread view, HDFC Chairman DeepakParekh had said RBI is expected to raise key short-term ratesby 25-50 basis points. "The RBI may be looking at an increase(of short-term rates) at 25-50 basis points... But Ipersonally feel that interest rates are already high and itwill impact the growth of retail loans and housing."

Industry chambers, including FICCI and CII, had expressedapprehensions that RBI tightening the monetary policy couldhit the growth, especially considering that industrial growthplunged to an 18-month low of 2.7 per cent in November, 2010.


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