Prices may not go much higher from the current levels, but the chances of them coming down from these levels are also low, as inflation pressures still continue, Dr Subir Gokarn, Deputy Governor, Reserve Bank of India, said.
Speaking at a conference in Mumbai, on Monday, Dr Gokarn said that inflation is a dominant concern in policy making. The reasons for high inflation are high food and fuel prices. The high price of non-food manufactured products shows that producers can pass on input cost to customers. There is enough demand in the system and therefore rise in commodity prices can become general inflation.
The extreme volatility in capital goods could be an indication that investment activity is slowing down. While it is an undesirable outcome, there has to be a trade off between demand and growth, said Dr Gokarn.
The latest monetary policy, where the RBI hiked key reference rates by 50 basis points, was the ‘tightest monetary policy in the last 10 years', Dr Gokarn said.
“Growth risk is emerging, but inflation risks appeared to be more of a concern than growth risk. At 8.5-9 per cent, there is significant risk of inflation expectation becoming completely unhinged,'' he said.
“We cannot expect to sustain growth if inflation continues to remain high,” he added.
