RBI to take action on high inflation

[Sukumar]

MUMBAI: The governor of Reserve Bank of India Y V Reddy says inflation
is unacceptably high and that the bank will make an announcement after
its next policy meeting on how it will seek to tame it.

India's inflation is at a 40-month high of 7.41 per cent fanning
expectations of more monetary tightening that would hit economic
growth.

"We anticipated some inflationary pressures but it turned out to be
more intense. We have to examine all aspects of the situation, both
global and domestic," central bank Reddy told reporters in New York
late on Tuesday.

"Definitely the current level of inflation is unacceptable to us,"
said Reddy in remarks aired Wednesday on a news channel.

"We are having a meeting of the policy advisory committee and we
expect to make an announcement on April 29," he said.

Some analysts forecast as much as a 50-basis-point interest rate hike
when the central bank meets later this month that could slow economic
growth further by driving up loan costs and dampening demand.

Other analysts have forecast the central bank would choose instead to
hike the amount banks must hold as cash reserves to curb liquidity in
order to try to tame inflation, saying another rate hike might hit the
economy too hard.

Interest rates are already riding at six-year highs. Economic growth
is seen slowing to as low as seven percent in this fiscal year to
March 2009, from around 8.8 percent last year.

The rising Indian inflation comes amid global worry about inflationary
pressures from soaring prices for food, fuel and metals.

Indian inflation has climbed steeply from a trough of 3.1 percent in
October and is far above the central bank's tolerance level of five
percent.

The country faces a daunting challenge of trying to keep food and
other goods affordable for its population of more than 1.1 billion
people, many of whom live in grinding poverty.

N.Sukumar
Research Analyst
www.kences1.blogspot.com