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Updated: January 28, 2010 19:02 IST

RBI hints at monetary tightening to contain inflation

PTI
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In its macroeconomic review, the Reserve Bank of India warned that there is a risk of high food prices getting transmitted into generalised inflation.
File Photo: Paul Noronha
In its macroeconomic review, the Reserve Bank of India warned that there is a risk of high food prices getting transmitted into generalised inflation. File Photo: Paul Noronha

Hinting at some tightening of the monetary policy on Friday, the Reserve Bank said inflation is a major challenge and would address it without hurting the growth.

“Returning to high growth path while avoiding the situation of generalised increase in inflation through monetary policy action has emerged as a delicate challenge for the RBI,” the apex bank said in its macroeconomic developments issued on the eve of the third quarterly review of the monetary policy.

Noting that inflation of food items soared to 21.9 per cent, the RBI said, “in December 2009, there have been signs of emergence of generalised inflation.”

Moreover, it added, the high inflation arising from rising food prices could spill over to non-food items and further add to inflationary pressures.

The WPI-based inflation, which rose from sub-zero level last year to 7.3 per cent in December, is expected to cross 9 per cent by the end of March, as indicated by the Chief Statistician of India, Pronab Sen.

On the positive side, the RBI-sponsored survey revised the GDP growth forecast for the fiscal to 6.9 per cent from 6 per cent earlier.

The instruments, which RBI usually utilises to contain money supply, include Cash Reserve Ratio, Statutory Liquidity Ratio, repo and reverse repo rates.

Keywords: RBIinflationpricesCRRGDPrepo rates

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