RBI may tighten liquidity in future policy directions

The common man, reeling under the impact of rising prices, got little relief with inflation figures touched 10.16 per cent in May, the highest in the last 19 months. This could force the Reserve Bank of India to tighten liquidity in its future policy directions.

According to the latest figures, essential items that have become dearer and directly hit the pocket of the common man include pulses, vegetables and sugar. Furthermore, the prices of metal, textiles and plywood prices have also gone up, as inflation has spread to non-food items.

Inflation data released officially on Monday says that the final figure in March was 11.04 per cent, up from the provisional figure of 9.90 per cent. The data for May too will be revised later. As per the provisional data, the previous high of 10.72 per cent was witnessed in the last week of October, 2008.

“It is always a matter of concern. Something more needs to be done by the Reserve Bank. It is already doing it. We are in touch with the bank,'' Finance Secretary Ashok Chawla told reporters here.

Inflation, which remained confined to food items for some time, has now spread to manufactured goods. Food inflation remained at the enhanced level of 16.49 per cent despite moderation from 16.87 per cent in the previous month.

“The picture is clear that inflationary pressures are now stronger. The March figures are revised upwards. The manufacturing sector inflation is up and is not confined to food. So, some action would be called for by the RBI in terms of policy tightening,'' Prime Minister's Economic Advisory Council Chairman C. Rangarajan said.

Deputy Chairman of the Planning Commission Montek Singh Ahluwalia said, “There is no doubt that in the first few months there has been a rise in inflation. Our assessment is that it going to come down towards the end of the year. I think that remains my view and you will see. I completely agree with Mr. Rangarajan for policy action by the central bank to curb inflation.''

The RBI is scheduled to announce the first quarterly review of the monetary policy on July 27. It may also take some action to deal with the deteriorating price situation that time.

Experts feel that rising inflation could prompt the Reserve Bank to tighten money supply on July 27.

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