Finance Minister Pranab Mukherjee on Monday expressed cautious optimism that, after fluctuating for a couple of months, headline inflation would tend to stabilise in the weeks ahead.

Interacting with the media after chairing the central board meeting of the Reserve Bank of India (RBI) here, Mr. Mukherjee said: “Couple of months, there will be fluctuations [in inflation] ... So I do hope that after couple of months it will stabilise”

The Finance Minister, however, was quick to add that one should not expect a drastic fall in inflation to 4.0-4.5 per cent. “It would be around 6.5-7.0 per cent for the year as a whole,” he said, while noting that steps should be taken to address the supply constraints of major farm products as far as food inflation was concerned.

India Inc. has been awaiting a cut in interest rates for quite some months now for investor confidence to recover and spur growth along with revival in demand. However, high inflation has been holding the apex bank from reducing its repo rate although it has taken care to infuse liquidity by easing the cash reserve ratio.

General expectation

The general expectation has been that the RBI would ease it key policy rates next fiscal during its annual credit and monetary policy review on April 17.

However, while the budget impost of excise and service tax — from 10 per cent to 12 per cent across the board — is expected to ‘officially' stoke about another percentage point in the inflationary spiral, the data on the retail inflation level for February does not augur well for a relaxation.

Asked about the chances of easing interest rates to make available cheaper credit, Mr. Mukherjee said: “From the monetary side as and when Governor RBI [D. Subbarao] will find appropriate, taking into account all factors prevailing at that point of time, he will take appropriate measures.”

Just a day before, the Finance Minister had said that he was expecting a lowering of interest rates by the RBI in the months ahead in the wake of moderation in inflation.

Evidently, the available data on prices has not been found comfortable. While WPI (wholesale price index) based inflation — having remained high during most of last year — had started showing signs of moderation, it inched up again to 6.95 per cent in February. Moreover, retail inflation, based on the Consumer Price Index (CPI), stands pegged at 8.83 per cent in February on account of higher prices of protein-based items such as eggs, meat and fish and edible oil products.

Meanwhile, in an official statement on the customary post-Budget meeting of the central board, the RBI said that various aspects of the budget and the background of constraints arising out of the international financial as also the difficult domestic situation came up for discussion.

Stressing on the government's ‘earnest commitment' to fiscal consolidation, the Finance Minister said “he had tried to focus on agriculture and infrastructure” and “endeavoured to push the economy on high growth path keeping in view the growth-inflation trade-off”.

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