The Prime Minister’s economic panel today said inflation is likely to cross RBI’s projection and the central bank may take actions in December itself.
“By the end of March 2010, it (inflation) could be close to seven per cent,” Prime Minister’s Economic Advisory Council chairman C. Rangarajan told reporters on the sidelines of a summit here today.
In its October policy review, the Reserve Bank had raised its projection for inflation at the end of March to 6.5 per cent from its earlier view of five per cent.
“Usually there is a seasonal decline, but certainly it appears that inflation by end of March will be higher than what has been projected earlier by the RBI,” Rangarajan said.
The former RBI governor also said the central bank would keep a watch on inflation, and some moderation can happen due to its actions, which, he said, is likely this month.
“We need to watch for behaviour of prices in December, possibly some action will be taken (by the RBI), which can have a moderating effect (on inflation),” he said.
Inflation for November jumped to 4.78 per cent from 1.34 per cent in October surprising all forecasters and creating apprehensions of an early withdrawal of soft monetary regime.
“By the end of December, they (RBI) can review the situation and take action. It (action) could come by end of December depending how the prices have behaved in December,” he said.
Rangarajan further said the Reserve Bank could suck out excess liquidity from the economy depending on the developments in December. However, fiscal stimulus could continue till March, he added.
“Looking at the behaviour of prices in December, the RBI could take action. The action could take either the form of reducing liquidity or acting on the policy rates,” he said.
On the fiscal policy front, he said, “it (the stimulus) will be in place till the end of March. Some view will have to be taken at the time of formulation of the Budget as to how to put in place a programme of fiscal consolidation.”
Rangarajan said reaching the fiscal responsibility and budget management (FRBM) target will take some time as the fiscal deficit currently is quite high. “It will take some years because fiscal deficit in the current year is 6.8 per cent. To take it to three per cent of GDP, which is the FRBM target, will take some years,” he said.