Pronab cautions RBI against hawkish policy

Even as many economists feel that the Reserve Bank of India (RBI) is behind the curve in raising monetary policy rates, Chief Statistician of India Pronab Sen has cautioned RBI against taking a hawkish policy stand, saying too many measures to tame inflation can be detrimental to growth.

“Very very strong measures (monetary) can be detrimental to growth,” Sen told reporters today while inaugurating a workshop on National Consultation on Certification of Project Managers.

Moreover, he said that even as the headline inflation, as measured by the Wholesale Price Index (WPI), was expected to ease to single digits during the current month, core inflation had become a cause for concern.

The rising core inflation might result in an inter-policy decision by RBI to raise policy rates. Core inflation is a measure of inflation which excludes certain items, particularly food and energy, which face volatile price movements

“…As core inflation is starting to get worrying, RBI might raise rates. But it is not just inflation, it is a full bunch of other sectors that RBI needs to take into account,” added Sen.

In April, the central bank had raised key short-term rates and banks’ cash reserve requirement by 25 basis points each to rein in inflation. The apex bank also increased repo and reverse repo by 25 basis points each to 5.25 per cent and 3.75 per cent, respectively.

Wholesale inflation had breached the double-digit mark in February at 10.3 per cent and peaked in March to 11.04 per cent. Inflation, which marginally eased to 10.16 per cent in May, is widely expected to moderate gradually as the low base effect starts to weaken.

The major concern, for most analysts and top policy makers like chief economic advisor to the finance ministry, Kaushik Basu, is the increasing rate at which the inflation numbers are becoming broad based, that is spreading from the category of primary articles to manufacturing and fuel.