Inflation above comfort zone: RBI

Inflation above comfort zone: RBI
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First Published: Tue, Oct 05 2010. 01 42 PM IST
Updated: Tue, Oct 05 2010. 01 42 PM IST
Mumbai: A Reserve Bank of India deputy governor on Tuesday expressed concern about inflation that he said persists well above the Reserve Bank’s comfort zone.
“The current inflationary scenario in India, which, as they have been saying in our recent assessment, is not very reassuring,” said Subir Gokarn, whose remit is monetary policy.
“The current inflation scenario is a cause of concern, as the inflation rate persists well above the upper bound of the comfort zone,” he said in a speech at a private equity conference.
Gokarn said normalization of monetary policy was now near completion, and further policy action would depend on upcoming data on growth and inflation.
The RBI has raised interest rates five times this year.
The yield on India’s 10-year benchmark government bond rose two basis points after his statements while the one year Overnight Indexed Swap (OIS) rose eight basis points to 6.64%.
“An unavoidable consequence of runaway inflation, however we define it, is that drastic action by the central bank and also by the government is needed to rein it in, which is bound to disrupt growth process,” Gokarn said.
Dealers said Gokarn’s remarks strengthened the possibility of a rate hike at the RBI’s next policy review, on 2 November.
The RBI last raised its repo rate, at which it lends to banks, on 16 September by 25 basis points to 6%. Many analysts expect another quarter-point increase by year-end.
“Food and energy price shocks have been a regular part of the economic landscape and may continue to be so in the future,” he said.
India’s annual food price inflation continued to quicken in mid-September as heavy rains disrupted supplies.
Wholesale price index inflation for August eased to 8.51% and the central bank has forecast it to fall to 6% by the end of the fiscal year in March. The WPI index was in double-digits for five months through June.
Inflation data for September is due to be released on 14 October.
Gokarn also said the central bank will respond to capital flows only if there are signs of disruption.
Foreigners have bought a record $19.7 billion of Indian equities this year, with about one-third of that happening since the start of September.
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First Published: Tue, Oct 05 2010. 01 42 PM IST