RBI to take appropriate steps on inflation: FM

RBI to take appropriate steps on inflation: FM

Kolkata: The Reserve Bank of India (RBI) will take appropriate measures to tackle inflation but the country cannot go on a “reverse growth path", the finance minister said on Saturday.

Pranab Mukherjee was speaking a day after data showed industrial output accelerated much faster than expected in July, strengthening the case for further monetary tightening by the central bank to tame near double-digit inflation.

Recent signs of cooling growth in Asia’s third-largest economy, along with a sluggish global economic recovery, had tempered expectations for a rate increase at the central bank’s policy review on 16 September.

But economists said the surprisingly strong industrial performance had boosted the chances of a rate rise next week.

“Inflation is a concern. I am concerned that prices are increasing," Mukherjee said here. “As suggested, RBI will take appropriate measures as and when needed. But at the same time, I cannot go on a reverse growth path."

Mukherjee said India would likely grow between 8.5-8.75% in the fiscal year ending March 2011, therefore possibly exceeding earlier growth estimates of 8.5%.

Industrial output rose 13.8% in July from a year earlier, nearly double analysts’ forecast of a 7.7% rise and the fastest growth since April.

Mukherjee on Friday called it extremely encouraging, adding a 63% growth in capital goods production signalled long run optimism in Indian industry, according to a statement.

“The finance minister said since the overall growth of GDP in the second quarter of this year is expected to be slower than in the first quarter because of a base effect a year ago, this news of extra buoyancy in the industrial sector is indeed very heartening," the statement said.

Policymakers and investors are expected to focus on inflation data next week for cues on the central bank’s next policy move.

August’s headline inflation due on Tuesday is forecast to have eased to 9.6%, which would be its second-consecutive month below double digits.

Yet with food inflation accelerating and signs of manufacturing capacity constraints, policymakers fear high food prices could spill over into the broader economy.