The Hindu Business Line : Inflation kept under check: RBI

The headline inflation in India has remained well contained in 2005-06 due to fiscal and monetary measures undertaken since mid-2004, the Reserve bank of India said in its report on the macro-economic and monetary developments in 2005-06 released today.

"Fiscal and monetary measures undertaken since mid-2004 to reduce the impact of imported price pressures on the domestic inflation and to stabilise inflationary expectations were successful in containing inflation towards the desired trajectory during 2005-06," the report said.

The year-on-year wholesale price inflation was 3.5 per cent on April 1, 2006 compared to 5.7 per cent a year ago.

The RBI said that although fuel prices were the key driver of domestic inflation during 2005-06, domestic petroleum product prices still lag the increase in international crude oil prices.

Firm oil prices

The central bank expects oil prices to remain firm in the future due to the limited spare global crude oil production capacity and the fact that US oil production and refining industries are still to recover fully from the impact of Hurricane Katrina.

It has maintained that the liquidity conditions remained largely comfortable during 2005-06, although there was some tightness during the last four months of 2005-06 on account of the IMD redemptions.

Besides the intervention of the RBI through the Liquidity Adjustment Facility and unwinding of the market stabilisation scheme, strong growth in deposits as well as access to non-deposit sources enabled the banking system to meet the enhanced demand for commercial credit, said the report.

Strong credit growth

Credit growth remained strong on account of acceleration in credit to the commercial sector.

Non-food credit, on a year-on-year basis, registered a growth of 30.8 per cent as on March 31, 2006 on top of a base as high as 28.8 per cent.

Food credit increased by Rs 1,771 crore as on March 31 2006 - reflecting a lower order of procurement of foodgrains, in contrast with an increase of Rs 3,034 crore during the previous year.

The report said that in the face of rising demand for commercial credit, banks restricted their incremental investments in Government paper.

The gilt portfolio of commercial banks registered a decline of Rs 15,562 crore as on March 31, 2006 in contrast with an increase of Rs 43,473 crore during the previous year.

According to the RBI, the economy exhibited strong performance during 2005-06, led by sustained growth in the industry and services sectors. "According to estimates of the Central Statistical Organisation , the real GDP growth accelerated from 7.5 per cent in 2004-05 to 8.1 per cent in 2005-06."

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