Monetary policy to stay tight: Rangarajan

Monetary policy to stay tight: Rangarajan

New Delhi: Monetary policy will continue to be tight to curb high inflation, the prime minister’s top economic adviser said on Friday, forecasting headline inflation to ease to 7.5% in March.

“The inflation rate continues to be high and therefore the monetary policy will have to remain tight," C. Rangarajan, chairman of the prime minister’s Economic Advisory Council, told reporters.

The Reserve Bank of India (RBI) has raised policy rates eight times in the last 12 months as headline inflation stays way above its comfort level of around 5%.

The bank has warned of more inflationary pressures, prompting analysts to expect further rounds of monetary tightening this year.

Wholesale price inflation , the most widely watched gauge of prices in India, unexpectedly quickened to 8.31% in February.

Finance minister Pranab Mukherjee expects inflation to cool to around 7% in March, while the central bank’s target is 8%.

Wholesale price inflation would average 6% in 2011/12, Rangarajan said.

He also said the current account deficit in 2010/11 would be only slightly above 2.5% of GDP and expected capital inflows of around $60 billion in the year would be enough to finance it.