The Hindu Business Line : Inflation at 5.02%, breaches RBI’s tolerance limit

New Delhi, March 7 Inflation continued its surging trend, breaching the RBI’s “self-imposed tolerance limit” to close the week ended February 23 at 5.02 per cent. Analysts said the mounting inflationary pressure could tie down the RBI from loosening monetary policy, even though the economy is showing signs of a slowdown. The central bank has set an upper limit of 5 per cent till March-end and 4.5 per cent by January 2009.

The spurt in the WPI-based inflation rate, which touched a 9-month high during the latest week, was driven by increase in prices across the board, with food prices, as well as manufactured products, turning dearer.

Reddy’s concern

Meanwhile, voicing his concern over rising inflation, the Reserve Bank Governor, Dr Y. V. Reddy, said the central bank would continue to focus on price stability while trying to achieve the objective of economic growth. “In the Indian context, considerable weight is currently accorded by the RBI to price and financial stability while recognising its twin objectives of growth and stability,” he said while addressing an international symposium on ‘Globalisation, Inflation and Monetary Policy’ in Paris on Friday.

Justifying the RBI’s continued focus on inflation, Dr Reddy said, “The large segments of the poor tend to reap the benefits of high growth with a time lag, while rise in prices affects them instantly.” He further said that there are “acute policy dilemmas arising from global food and energy prices as also from financial market turbulence that need to be factored in evolving appropriate policy responses.”

It was the first time since June 2, 2007, that inflation had climbed back over 5 per cent. Headline inflation rate had fallen to a five-year low of 3.07 per cent in October, from 6.69 per cent end-Jan 2007 due to a combination of base effect and monetary and fiscal steps by the RBI and the Centre. However, inflation started moving up again towards the end of calendar 2007 due to increasing commodity prices.

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