The Reserve Bank has expressed concern over high food inflation, but 
“Food picture remains a matter of some concern. Despite numbers coming down, it is still high. We do expect the numbers to come down in the next few months,” RBI Deputy Governor Subir Gokarn told reporters in Lucknow on Sunday.
“Impact of good monsoon on total picture has not been as strong as expected,” said RBI deputy chief, who earlier delivered a key note address at 5th National Conference organised by the Jaipuria Institute of Management on banking and financial inclusion.
In fact, torrential rains have damaged the onion crop in parts of Maharashtra, leading to about 10 percent rise in the vegetable just in a week ended 30th October.
While overall inflation inched up marginally to 8.62 percent in September, food inflation stood at a high of 12.30 percent for the week ended 30th October despite some moderation.
The overall inflation figure for October is scheduled to be released on Monday.
For the sixth time since January, RBI raised the key short-term lending (repo) and borrowing (reverse-repo) rates by 25 basis points to 6.25 percent and 5.25 percent, respectively at its mid-year credit policy review this month.
The monetary tightening, Gokarn said, was having its impact on inflation of the manufactured products.
“We started monetary tightening in January. Rate of inflation in manufacturing has peaked around July-August, but moderated later. In that sense monetary policy is having an impact,” he added.
In mid-term review, RBI had said the monetary policy is aimed at conditioning and containing inflation perception in the 4-4.5 percent range, in line with the medium-term objective of 3 percent inflation.
It, however, pegged inflation at 5.5 percent by the end of this fiscal.
Meanwhile, Gokarn on Saturday expressed concern over the sharp fall in factory output growth, saying the latest numbers are disconcerting.
However, he was quick to add that the other key indicators such as the corporate earnings and tax collection numbers show that the recovery process is on track, though they may not be as explosive as it was some quarters back.
“The IIP (index of industrial production) is suggesting somewhat of a deceleration (in the growth process). 5.5 (per cent) in August and 4.4 per cent in September, a lot of that deceleration is coming in from a sharp decline in capital goods, which, of course, must raise some concerns,” Gokarn told a CFO (Chief Financial Officers) Summit organised by the Indian Industries in Mumbai on Saturday.
“Whether this deceleration reflects a slowdown in investment activities? If that is the case, is it reflecting the cost of funding, is it reflecting weaker expectations of future growth or a combination of the two? All of these is a matter of concern,” the Deputy Governor further said.
For the second month in a row, the factory production numbers almost halved to 4.4 per cent in September, which is a 16-month low from 8.2 per cent in the year-ago period.
The September figure is the lowest since the recovery got underway and reflects a slowdown in demand across the sectors, as interest rates rose in response to RBI’s tight monetary moves.
Even the revised August numbers at 6.3 per cent are way off the comfort level of the Finance Ministry, which is eyeing an over 8.5 per cent GDP expansion this fiscal.