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Rising crude, food prices threat to declining inflation: RBI

Rising crude, food prices threat to declining inflation: RBI
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First Published: Wed, Mar 02 2011. 06 58 PM IST
Updated: Wed, Mar 02 2011. 06 58 PM IST
New Delhi: Reserve Bank on Wednesday expressed fears that rising crude and commodity prices could derail the efforts to contain inflation, which has started moderating.
“It (inflation) is moving downwards is a reflection of our monetary actions. But the risk of it turning around because of energy and food remains,” RBI Deputy Governor Subir Gokarn told reporters here.
He said energy is a major risk and at present “we cannot predict how high the oil prices will go or where it will stabilise”.
RBI has hiked key policy rates seven times since March 2010 to tame inflation, which came down to 8.23% in January from over 10% in June last year.
Crude oil prices in the international market are ruling above $116 a barrel and with the crisis worsening in Libya and other Middle East countries, they may go up further.
A World Bank report recently said the rising food prices have pushed 44 million into poverty.
In India, however the food inflation has come down to 11.49% in second week of February from over 18% in December last year.
Gokarn said the gradual and calibrated moves of the central bank have resulted in “desired impact in terms of the tendency of core inflation”.
“We have not seen any signs that the number is going out of control. Of course, there are still supply side concerns,” he said.
Despite the downward movement of the inflation, it is a cause of concern for the government.
“It is not the headline inflation so much that worries us. But in terms of controlling whether this high headline is spilling over to the core inflation,” he added.
He, however added that monetary policy alone cannot be used for curbing food inflation. There are certain structural factors involved in it.
On the Current Account Deficit, the RBI official said since the country’s economic growth has been revised upwards of 8% for the current fiscal, the CAD will be lower than the earlier estimates of 3.5% on account of higher growth in exports over imports.
He said comfort zone for inflation is 4 to 5%.
To a query regarding raising of FII limit in the bond market, he said the RBI and all other regulators are working together to remove the bottlenecks in the segment.
Bond market allows money to come into infrastructure development funds, makes it more attractive and allows more FII investments into the bond market.
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First Published: Wed, Mar 02 2011. 06 58 PM IST
More Topics: RBI | Gokarn | Inflation | Crude | Food Prices |