RBI has done enough on inflation

RBI has done enough on inflation

Chennai: Central bank has taken adequate measures to manage inflation and expects food inflation to ease on good monsoon rains, a deputy governor at the central bank said on Friday.

“We have done enough to manage inflation. We expect to see the effects in the second half of the year because policy action acts, or have an effect, with a lag. You will see them manifested over the next few months," Subir Gokarn, one of the four deputy governors at the central bank, said.

But, demand-side capacity constraints are still seen, Gokarn told reporters in the southern Indian city of Chennai.

India’s 10-year benchmark bond yield fell as much as 8 basis points after his comments.

At 12:43 p.m. (0710 GMT), the yield on the benchmark 10-year bond was down 8 basis points at 7.81% from before the comments. It had closed at the day’s high of 7.91% on Thursday, its highest since May 7.

The food price index rose an annual 9.53% in the week to 24 July compared with the previous week’s increase of 9.67% as prices of fruit and vegetables fell by 3%, according to data released on Thursday.

“We think that we have a handle on inflationary situation," Gokarn said.

He also said he expects global commodity and energy markets to remain moderate-to-soft and an easing of supply constraints towards the end of the current fiscal year.

Wholesale price index, India’s most closely watched inflation measure, is expected to record a sixth straight month of double-digit rise in July. It rose 10.55% in June.

Price rise has now become a hot button political issue and finance minister Pranab Mukherjee told parliament on Wednesday that rising prices were a cost that Asia’s third-largest economy was paying for being on a high growth path.

The Indian economy is expected to grow at 8.5% for the year ending March 2011.

Since March, India’s central bank has raised its main lending rate by a total of 100 basis points to 5.75% and the borrowing rate by 125 basis points to 4.50%.