RBI Governor Raghuram Rajan on Thursday said that he “was not very comfortable” with the rising inflation in the country.
The country’s monthly consumer price index (CPI) for November jumped to 11.24 per cent from 10.09 per cent in October.
“As far as the inflation goes we are uncomfortable with the current levels. I have said that earlier when inflation was 10.09 and also now when it is past 11,” he told reporters during the press conference held after the central board meeting here.
According to Rajan, both CPI and IIP (or Index of Industrial Production) numbers have not been according to market expectations. The IIP for October contracted 1.8 per cent. The wholesale price index (WPI) numbers are expected early next week.
“We just got those numbers… We will have to take all sorts of view of these data. As I said, we have to look at the details and then frame the policies,” he said, adding that “it was too quick” for him to immediately react on these numbers.
The Governor did not, however, indicate if interest rates would again be hiked, in view of the present inflationary trends. The next monetary policy is scheduled on December 18.
Pointing out that growth is weaker than expected, Rajan claimed that RBI would analyse the data before taking a call on the matter.
“In a situation where there is high inflation and low growth we have to calibrate the policy accordingly. Certain trade-offs need to be made. And there are certain judgment calls we will make based on the data.”
Possible solutions The possible solution to such inflationary trends would be a mix of monetary and fiscal policy measures. Rajan had yesterday said that both supply and demand side factors were responsible for rising inflation in the country.
“I think both kinds of policies are necessary. There is the fiscal policy that the Finance Minister has laid down and which, if followed, will bring down the fiscal deficit,” he said hinting at bringing diesel prices to near market levels.
While such a move will have short-term inflationary impact, it will have a positive impact in the long run. The deficit reduction would help control inflation.
He, however, maintained that a balance was required between demand and supply-side factors.