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  • Prices still main worry, says PMEAC; RBI optimistic

    Published on August 7, 2010

    The Prime Minister’s economic advisory panel expressed concerns over double-digit inflation even as the Reserve Bank exuded confidence that prices will come down by the second half of the fiscal on account of measures taken by it, among other things.

    “There are signs of weakening (of inflation), (but) the level of inflation still remains high. You must continue to address the problem,” Prime Minister’s Economic Advisory Council Chairman C Rangarajan said on the sidelines of conference on financial inclusion in Chennai on Friday.

    RBI Deputy Governor Subir Gokarn told reporters on the sidelines of the same conference that RBI has done enough to manage inflation and would wait and see the impact of its action in the later half of this fiscal.

    “We expect to see the effect in the second half of this fiscal,” he said, adding that softening of commodity prices will help in inflation management.

    Gokarn said the combination of a good monsoon and the softening of commodities at the global level will help ease supply side pressures.

    His comments follow RBI Governor D Subbarao’s observations on Thursday at Hyderabad that said supply-side pressures are “diluting” RBI’s efforts at containing inflation.

    “More often than not, the drivers of inflation emanate from the supply-side. This dilutes our potential effectiveness as inflation targetters,” Subbarao said in his lecture delivered at the Council for Social Development.

    Subbarao said food items have a weight of 46 to 70 percent in various consumer price indices and “are notoriously subject to supply shocks which are normally beyond the pale of monetary policy”.

    Replying to a debate on inflation in the Rajya Sabha on Thursday, Finance Minister Pranab Mukherjee had said that RBI was keeping a watch on demand factors that fuel inflation and it will make adjustments, if necessary.

    “It (RBI) is keeping a watch on the demand side and if it is found that demand side needs to be taken care of and if it is necessary then adjustments will have to be made.”

    The Finance Minister had also said that Centre had done whatever was possible to blunt inflation and it was for the states to take action against hoarders and revamp the public distribution system to check prices

    Headline inflation remains at a high 10.55 percent for June, while food inflation has been sliding for the past few weeks.

    For the week ended 23rd July, it came down to 9.53 percent, making it the third successive decline after ruling in high double-digits for many months.

    Admitting that global growth was looking a little more unsettled, Gokarn said there is still some uncertainty about the robustness of the global economic recovery.

    However the slower growth of recovery was actually an opportunity, the deputy governor said, as it would contribute to inflation management.

    “There is fair amount of excess capacity on manufacturing products, which are easily traded, and that will help to manage domestic inflation,” he said.

    The RBI has been tightening its monetary policy since February this year to control inflation.

    In its monetary review last month, it raised its short term lending and borrowing rates by 25 basis points each.