The Hindu Business Line : Global inflationary pressures likely to remain, says RBI

Mumbai, July 28 High global energy and food prices continue to fuel inflationary pressures, even though crude price has cooled off a bit and local inflation fell marginally last week.

In its first-quarter macro economic and monetary review, the Reserve Bank of India said the “potential inflationary pressure from international food and energy prices appear to have amplified and by current indications are likely to remain so for some time.”

Inflation based on wholesale price index reached 11.89 per cent for the week ended July 12, lower by two basis points from 11.91 for the week ended July 5, but more than four per cent higher from the March 2008 figure of 7.7 per cent.

In the review, released on the eve of the central bank’s quarterly monetary policy announcement, the RBI said despite prospects for lower consumption growth in advanced economies, international crude prices are expected to remain at an elevated level in view of the relatively tight demand-supply balance, posing a major risk to the global inflation outlook.

The easing of crude prices and a marginal fall in inflation last week generated expectations that RBI may not announce further rate hikes in Tuesday’s policy.

However, it has to be seen what Dr Y.V. Reddy will prescribe to control inflation in what could be his last policy as Governor of RBI — his current term expires in early September.

RBI had hiked its short term interest rate — repo rate — by 75 basis points to 8.5 per cent and CRR by 125 basis points to 8.75 per cent so far in 2008.

SURVEY OUTLOOK

According to RBI’s industrial outlook survey of manufacturing companies, the business expectation indices based on assessment for April-June 2008 and expectations for July-September 2008, decline by 5.4 per cent and 0.9 per cent respectively over the corresponding previous quarter.