Inflation at 5.5% in 6 months: RBI

[suguhopes]

NEW DELHI: The economy’s woes due to double-digit inflation are
unlikely to end any time soon and while the Reserve Bank of India will
hold a review meeting around July-end, the central bank is unable to
offer any assurances on interest rate cuts in the near future.

The central bank hopes that its strategies will help keep growth at 8%
and bring down inflation to 5.5% in six months, but much depends on
international factors, RBI governor Y V Reddy told the standing
committee attached to the finance ministry on Monday in a briefing
that lasted more than three hours.

Reflecting their political worries, MPs questioned Reddy on the
efficacy of high interest rates which had led to incease in the home
loan outstandings and tenures. Reddy was not able to clearly say when
the trend could be reversed or even if more hikes could be ruled out.

He defended the economic situation as not being as bad as that of
other growing economies. He pointed out that the “world economy was in
stagflation” which was bound to cast a shadow on India as well. But on
the other hand, it was incorrect to compare India with developed
European nations or Japan.

A couple of MPs argued that while FDI was being allowed into the stock
market, there were disincentives for Indian capital in view of the
anti-inflationary measures that government had taken.

This amounted to FDI being favoured even though the RBI’s response is
clearly aimed at checking demand. Reddy said RBI measures had sucked
out a large amount of liquidity from the economy and perhaps more
measures were needed to check inflation.

N.Sukumar
Research Analyst