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Govt should use all policy instruments to tame inflation: PMEAC

Govt should use all policy instruments to tame inflation: PMEAC
PTI
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First Published: Tue, Apr 05 2011. 02 59 PM IST
Updated: Tue, Apr 05 2011. 02 59 PM IST
New Delhi: Prime minister’s economic advisory panel wants the government to utilize all available policy options to bring down inflation to an acceptable level of 4-5% from 8.31% currently.
“We must use all our policy instruments to bring down the current inflation and re-anchor the inflationary expectations to the four-or-five-per cent comfort zone”, C. Rangarajan, who heads the Prime Minister’s Economic Advisory Council (PMEAC) said.
Elaborating on the trade-off between country’s economic growth and its rate of price rise, Rangarajan said an environment of reasonable price stability is considered “conducive” to economic growth.
Pointing out that last four weeks have witnessed a rise in vegetable prices, one of the primary causes of food inflation this year, Rangarajan said “inflation is expected to come down in the coming weeks”.
While mentioning the role of supply-side disturbances in contributing to the price rise, he said such a situation warrants monetary action pertaining to liquidity and interest rates, else inflation could spread to the manufacturing sector.
Rangarajan also cautioned on the adverse impact of high inflation on India’s GDP (Gross Domestic Product- market value of all final goods and services produced in a country in a given period), saying persistent high prices can distort the motives for investment, thereby undermining growth.
Food inflation stood at 9.5% for the week ended 19 March amid easing of pulses prices, even as fruits and protein-based items remained costly. Food inflation stood at 20.18% in the comparable period last year.
Headline inflation in the country has remained above 8% since February, 2010. Overall inflation in February this year stood at 8.31%.
Meanwhile, non-food inflation was up by 26.18% year-on-year.
Policymakers have been struggling to manage the trade-off between growth and inflation, with the RBI hiking its short-term monetary policy rates, repo (lending) and reverse repo (borrowing) rates eight times since March 2010.
The Reserve Bank also raised its inflation projection to 8% for March-end against 7% estimated earlier.
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First Published: Tue, Apr 05 2011. 02 59 PM IST
More Topics: Inflation | PMEAC | GDP | C Rangarajan | Economy |