The Hindu Business Line : RBI hints at measures to contain inflation

Cause for concern
The inflation is despite the pre-emptive monetary and fiscal measures as well as the easing of fuel prices, which could have helped to contain it.

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Mumbai Jan. 29 The Reserve Bank of India has hinted at measures to contain inflationary expectations as prices of food and manufactured items continue to rise and credit growth exceeds 30 per cent.

Inflationary pressures in the economy remain, said RBI, in its third quarter review of macro economic and monetary developments, released on Monday, two days ahead of its quarterly Policy.

The inflation is despite the pre-emptive monetary and fiscal measures as well as the easing of fuel prices, which could have helped to contain it. "Measures of consumer price inflation remain at elevated levels, mainly reflecting the impact of food prices," the RBI said. The wholesale price inflation exceeded 6 per cent in January as against RBI's target of 5-5.5 per cent for the year. Inflation was 4.1 per cent as on March 2006.

On a year-on-year basis, non-food credit grew 31.2 per cent as on January 5, 2007. About 34 per cent of the incremental credit was absorbed by industry, 12 per cent by agriculture, 15 per cent by housing sector and 11 per cent by retail loans. Loans to commercial estate, which increased by 84 per cent, absorbed five per cent of the incremental credit growth, the review said.

Monetary policy

"Monetary policy affects its final goals with long and variable lags but on a cumulative basis, thus warranting a forward-looking approach," it said.

Further, effective monetary policy has to do as much with inflation expectations as the actual outcome of inflation.

The review has also observed that money supply has exceeded the "indicative trajectory" reflecting strong demand conditions in the economy. Broad money grew by 20.4 per cent as on January 5, 2007 from 17 per cent at the end of March 2006 and 16 per cent a year ago.

Forex market

Referring to the development in the forex market, the review pointed that the rupee has recorded 3.9 per cent appreciation against the dollar since September 2006. On a fiscal year basis, the rupee (as on January 23, 2007) appreciated by 0.9 per cent against dollar and 4.6 per cent against the Japanese yen but depreciated by 11.1 per cent against the pound sterling and 5.3 per cent against the Euro.

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