India can't afford to be lax on inflation, Central Bank says

“You cannot afford to be in any way lax in monitoring inflation and controlling it,” Chakrabarty said in an interview in Sydney. “We would not like to have more than 4 or 5 percent inflation. That's the challenge.”

Central Bank Governor, Duvvuri Subbarao, raised the amount lenders are required to set aside as reserves last month to prevent excess money in the banking system from fanning price gains. India's wholesale-food inflation rate rose to 17.56 percent in the week to Jan. 23, moving closer to an 11-year high and fueling speculation that Subbarao may raise interest rates.

India's “inflation is edging up, and that's why you see we have already exited from the monetary stimulus, almost exited,” Chakrabarty said. “We hope that this will anchor inflation” expectations.

Consumer-price inflation in India is the highest among Asia-Pacific countries, according to data compiled by Bloomberg. Prices paid by industrial workers rose 14.97 percent in December from a year earlier, the most in 11 years, while consumer-price inflation for farm workers in the country accelerated to 17.21 percent.

The benchmark wholesale-price inflation rate was 7.31 percent in December, the highest in 13 months.

Monsoon Rains

Food costs are rising as the June-to-September monsoon rains, the main source of irrigation in Asia's third-largest economy, were the weakest since 1972, hurting agriculture.

The Reserve Bank of India hopes to cool inflation to 4 percent or 5 percent in 2011 or 2012, Chakrabarty said. Price gains won't come to that level “so soon,” the deputy governor said, without saying if he was referring to consumer or wholesale prices.

The central bank on Jan. 29 increased the so-called cash reserve ratio by 0.75 percentage points to 5.75 percent, a move it estimates will drain about 360 billion rupees (US$7.7 billion) from the banking system. Subbarao left the benchmark reverse repurchase rate unchanged at 3.25 percent.

“Our main policy instruments are all currently at levels that are more consistent with a crisis situation than with a fast-recovering economy,” Subbarao said at the time. “It's therefore necessary to carry forward the process” of exiting them, he said, signaling the central bank may boost policy rates as growth strengthens.

1|2|Next Page>>

SharePrintEmail

Write a Comment

Terms

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos
 Respond to this email