RBI to up inflation forecast in July review

Governor D Subbarao today indicated that the Reserve Bank would revise upwards its inflation projection for the year in view of the persistent increase in the prices of commodities and food articles.

"Earlier, we expected the inflation rate to come down to 5.5 per cent by March 2011. We projected this number in our earlier meeting. We will revisit that number in the July policy meeting," Governor D Subbarao told reporters here.

Continuing the upward march, inflation crossed 11 per cent in March in the final data, while this was only 9.9 in provisionally. As per the provisional figures, headline inflation stood at 10.16 per cent in May and may be revised upwards in the final estimate. The food inflation too is hovering above 16 per cent.

The apex bank is slated to announce the first quarterly review of the monetary policy on July 27 during which it is widely expected to jack up key policy rates. The central bank has to draw a balance between the demand to contain inflation and promote growth.
    
Finance Minister Pranab Mukherjee had earlier said the RBI would take appropriate steps to contain the rising inflation. "So far as the monetary part is concerned, the Reserve Bank will look into it. Even in the last policy, 25 basis points were increased. So, as and when the Reserve Bank feels appropriate steps are required to be taken to control the inflation, it will do so," Mukherjee had said.
    
On liquidity crunch, the Goveror said it is a temporary phenomenon and the situation is easing. "The liquidity situation has become more comfortable now. We have done detailed calculations for the next four weeks and have taken measures which we believe that the temporary liquidity problem is taken care of," Subbarao said.
    
The liquidity in the system came under pressure following payment of over Rs 1.06 lakh crore towards 3G and broadband spectrum fee and advance taxes which became due on June 15.
    
To overcome the shortage, the RBI has decided to buyback government bonds from banks, a decision that would release about Rs 20,000 crore into the system.
     
The central bank, the Governor said, would go ahead with its plan to raise Rs 60,000 crore in the first half of the current financial year.
    
"That is the plan as of now. The borrowing programme will continue. But to manage the temporary liquidity problem, we have decided to buy back some securities due for redemption (later this year, from Friday)," Subbarao informed. The central bank had announced the Gilt buyback on Wednesday last.
    
To a question on whether the unexpected huge spectrum haul will reduce the government's borrowing programme, the Governor further said, "it is the prerogative of the government on what they plan to do with the additional money they generated through the 3G and broadband auctions. As of now we have no information of any change in the government's borrowing programme."