News4u-Business Desk-India can’t afford to be lax about fighting inflation as the nation seeks to slow price gains to 5 per cent or less, central bank Deputy Governor K C Chakrabarty said today.
“You cannot afford to be in any way lax in monitoring inflation and controlling it,” Chakrabarty said in an interview in Sydney.
“We would not like to have more than 4 or 5 per cent inflation. That’s the challenge.”
Central Bank Governor Duvvuri Subbarao raised that amount lenders are required to set aside as reserves last month to prevent excess money in the banking system from fanning price gains.
India’s wholesale-food inflation rate rose to 17.56 percent in the week to January 23, moving closer to an 11-year high and fueling speculation that Subbarao may raise interest rates.
India’s “inflation is edging up, and that’s why you see we have already exited from the monetary stimulus, almost exited,” Chakrabarty said.
Consumer-price inflation in India is the highest among Asia-Pacific countries, according to data compiled by Bloomberg.
Prices paid by industrial workers rose 14.97 per cent in December from a year earlier, the most in 11 years, while consumer-price inflation for farm workers in the country accelerated to 17.21 per cent.
The benchmark wholesale-price inflation rate was 7.31 per cent in December, the highest in 13 months
Food costs are rising as the June-to-September monsoon rains, the main source of irrigation in Asia’s third-largest economy, were the weakest since 1972, hurting agriculture.
The Reserve Bank of India hopes to cool inflation to 4 per cent or 5 per cent in 2011 or 2012, Chakrabarty said.
Price gains won’t come to that level “so soon”, the deputy governor said, without saying if he was referring to consumer or wholesale prices.
The central bank on 29th January increased the so-called cash reserve ratio by 0.75 percentage points to 5.75 per cent, a move it estimates will drain about Rs 360 billion (USD 7.7 billion) from the banking system.
Subbarao left the benchmark reverse repurchase rate unchanged at 3.25 per cent.
“Our main policy instruments are all currently at levels that are more consistent with a crisis situation than with a fast-recovering economy,” Subbarao said at the time.
“It’s therefore necessary to carry forward the process” of exiting them, he said, signalling the central bank may boost policy rates as growth strengthens.
The central bank raised its economic growth forecast to 7.5 per cent in the fiscal year through March 2010, from an earlier estimate of 6 per cent, and increased its inflation forecast to 8.5 per cent from 6.5 per cent.
The Reserve Bank will give a forecast for the following year in April, Chakrabarty said.
Central bank Deputy Governor K C Chakrabarty
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