Tighter credit won’t ease inflation: FM

Tighter credit won’t ease inflation: FM

Mumbai: India’s finance minister said tightening credit would not help ease the country’s soaring food price inflation.

“If it is substantially from the supply side and if it is not from the demand side, then simply by tightening credit you are not going to get the desired result," Pranab Mukherjee said in an interview with the Economic Times newspaper.

“Therefore a balanced approach needs to be taken," he said in the report published on Friday.

India’s food prices rose nearly 19% annually in mid-December and a central bank deputy said food inflation could drive headline inflation as growth picks up and capacity constraints emerge.

Mukherjee said he was not certain about the extent to which the monetary policy was influencing food prices.

“Until recently, we have not resorted to strict money policy. But the liquidity available in the market... to what extent it is influencing prices particularly commodity prices in hoarding, is yet to be seen," he said.

He added that higher minimum support prices for wheat, rice and sugarcane were partly responsible for higher prices.

When asked about growing concerns on capital inflows, Mukherjee said the government was monitoring the situation.

“We always watch it. We want it. But there should not be a situation where volatility of the inflowing capital would cause problems. In our system it has not reached that stage where we have to be worried."