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| Inflation getting broad-based: Subbarao |
| BS Reporter / Hyderabad Jun 19, 2010, 00:38 IST |
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 Reserve Bank of India Governor D Subbarao today said inflation was getting more broad-based as demand-side pressures rose.
“It is the case of double-digit inflation for four months in a row. It is also the case that what started off as supply-side inflation is getting more generalised,” he said, adding consumer goods, capital goods and investments were picking up and the Index of Industrial Production numbers were very encouraging. As growth gains momentum, there was concern on the inflation side, Subbarao said.
But the governor said RBI would continue a calibrated exit from the expansionary stance taken during the crisis. “In January, we raised the CRR (Cash Reserve Ratio). In March and April, we raised the interest rates, and that stance will not change."
He refused to specify RBI’s plan to check inflation, saying the central bank was watching the situation.
Government data released on Monday had pegged inflation for the month of May at 10.16 per cent.
The central bank had set a target of 5.5 per cent inflation for March 2011, but it now plans to 'revisit' the figure at its next monetary policy meeting due in July, the governor said
Liquidity in the banking system has improved after measures initiated by the RBI, though the repo rate will remain the operative rate in the system for next few weeks, Subbarao said, hinting that the overnight call money rates will tend to hover around the 5.25 per cent repo rate.
"In the long run, it will depend on how the liquidity situation will evolve and what action RBI will take,'' Subbarao said.
The current shortage of liquidity triggered by the outflow of funds as winners pay for the telecom licences is unlikely to affect the government’s borrowing plans, he said.
RBI had two days ago announced buy back of Rs 20,000 crore debt on behalf of the government. Of that, Rs 13,000 crore was actually due for redemption in the next four weeks, the governor said.
“This (buying of debt) is a temporary liquidity injection measure to what we see as a temporary liquidity constraint in the market,” he said.
Referring to the deregulation of interest rates, he said it was an important reform and a way forward. The base rate system that would come into effect from July 1 was a measure towards deregulation of interest rates.
“The only interest rates that will be regulated then will be for agriculture, exports and interests on savings accounts. We are for deregulation of interest but we want to time it appropriately. We want to make sure that deregulation of savings bank interest rate encourages financial inclusion,” he explained.
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