Global commodity prices making inflation management tough: RBI

Euro zone has been a persistent source of uncertainty for India, says Gokarn.

The Reserve Bank of India (RBI) on Thursday said high global commodity prices were the most visible risk at present, making inflation management difficult for the central bank.

RBI Governor Duvvuri Subbarao said though inflation was coming down, it was higher than the RBI’s tolerance level of 4-4.5 per cent in the medium term, and 5.5 per cent by March 2011 (according to wholesale price index headline inflation under new series).

“Global commodity prices are a concern. In the last few days, it has moved up and that may be seasonal. But the fact is that commodity prices are going up even when the overall state of global economy is sluggish. It is going to make the challenge of inflation management difficult. The commodity prices seem to be the most visible risk that does not have to do with the European situation, but global,” said Subir Gokarn, deputy governor, RBI, on being asked if the euro zone crisis would affect India.

Global crude oil prices have hovered around $90 a barrel over the last few days.

“Inflation is higher than indicated. It was 8.6 per cent in October, still higher than 5.5 per cent. We will revisit the (inflation) numbers in January, which is not to suggest that we will revise it upwards or downwards,” said Subbarao.

To tame inflation, RBI in November raised interest rates for the sixth time this year. The apex bank hiked the repo rate (at which it lends to commercial banks) by 25 basis points (bps) to 6.25 per cent and the reverse repo rate (which it pays to banks for deposits) by 25 bps to 5.25 percent.

Commenting on the global economic situation, Gokarn said the euro zone had been a persistent source of uncertainty for India.

“The euro situation has been a persistent source of uncertainty for us, starting from April-May. Now, it has some other spread points emerging. The global situation is still uncertain and unpredictable. We are comforted by the fact that despite the turbulence, our growth momentum has not been eroded,” said Gokarn.