PMEAC wants RBI to signal concern on inflation; tighten policy

Prime Minister's economic council expects the Reserve Bank of India (RBI) to tighten monetary policy to tame inflation, which inched closer to double digits at 9.9 per cent in March.

"It is important for them (RBI) to signal concerns for inflation. I do expect some tightening in Tuesday's monetary policy," Prime Minister's Economic Advisory Council (PMEAC) member Suman K Bery told reporters here today.

RBI is slated to announce its annul monetary policy on April 20 amid inflation nearing the psychological mark of double digits. The central bank, Bery said, "should be signalling concern (on rising inflation) but not panic... The RBI would be within its rights to signal hawkish, but act doveish."

Inflation is essentially a supply driven phenomenon, he said, adding "It is certainly the case that the commodity prices worldwide are rising... Oil is rising."

The apex bank started reversing its soft monetary policy stance from October 2009, when it raised the statutory liquidity ratio or the portion of deposits that banks keep in government bonds, gold and cash, by one percentage points to 25 per cent.

Then, in its third quarterly policy on January 29, RBI asked banks to keep more cash with the central bank. It did so by raising the cash reserve ratio by 0.75 percentage points to 5.75 per cent.

Last month, it raised key short-term lending and borrowing rates by 25 basis points each to 5 per cent and 3.5 per cent respectively as part of its tight money policy to combat inflation.