Pranab seeks British lessons to tame inflation

Perturbed by high inflation despite the Reserve Bank of India's (RBI) monetary tightening initiatives, India today asked Britain for lessons to rein in price rise.

“While there has been some progress in containing domestic inflation, it continues to be an area for concern. Supply side and monetary measures are being actively taken to address it. I look forward to hearing from you how UK is addressing the challenge of managing inflation,” Finance Minister Pranab Mukherjee said in London. He was speaking at the ministerial-level India-UK Economic and Financial Dialogue.

With inflation remaining high, the RBI reversed its soft monetary stance to provide impetus to the economy that was hit by the global financial crisis since early 2010. Over the last 15 months, the RBI has increased its key policy rates 10 times. Despite the measures, inflation has came down to only 9.44 per cent in June, from 10.4 per cent in March, 2010. The central bank may go for a further 25 basis-point hike in repo (short-term lending) rate in its monetary review tomorrow.

In Britain, consumer price inflation (CPI) — UK’s price indicator is based on CPI, while India uses the wholesale price index or WPI) — was reported at 4.2 per cent — quite high by Britain's standards, as the Bank of England had pegged it at two per cent. Inflation in Britain is expected to rise over five per cent, but even then the central bank was not resorting to a tight monetary stance.

The bank’s Monetary Policy Committee has made it clear that it is not in a hurry to hike rates. In fact, there are speculations that the central bank might go for another easing by purchasing more bonds.

Mukherjee said global uncertainty marked by renewed weakness in the US economy and the danger of a sovereign debt crisis was spreading to financial markets.

He said the new package worked out by the IMF and the European Central Bank must aim at minimising the probability of a recurrence of the crisis.

He said India is in the process of deepening policy reforms in the financial sector and addressing gaps in the overall economic regulatory architecture.