Inflation fears persist

THE RESERVE BANK OF INDIA ANNUAL REPORT 2006-07

Real Policy Rate

March
2006March
2007August
2007#March
2006March
2007August
2007# Developed Economies US4.755.255.251.352.452.85 UK4.505.255.752.702.153.85 Euro area2.503.754.000.301.852.20 Developing Economies Brazil16.5012.7511.5011.209.757.80 China5.586.396.844.783.091.24 India6.507.757.751.601.052.05     -2.40-1.85-3.70 Indonesia12.759.008.25-3.052.502.15 Israel4.754.003.751.154.903.45 Korea4.004.505.002.102.302.50 Russia12.0010.5010.001.403.101.20 South Africa7.009.0010.003.602.903.00 Thailand4.504.503.25-1.202.501.55 # : As on August 17, 2007. Real policy rates for August 2007 are based on latest available inflation rates.
Note: 1. Real policy rate is the policy rate less year-on-year consumer price inflation. For India, repo rate is taken as the policy rate, while inflation refers to that for CPI industrial workers.
2. Figures in parentheses for India are based on wholesale price inflation.
Source: International Monetary Fund, The Economist and official websites of respective central banks.  The regulator is also cautious of domestic factors such as strong growth in monetary aggregates, elevated asset prices and large capital flows.  All these have huge implications on domestic liquidity. It is also worried that supply constraints from shortfalls in agricultural performance and infrastructure could constrain future growth and also exert inflationary pressures.  ``The RBI will keep a continuos vigil supported by appropriate policy actions to maintain price stability on a sustained basis. The outlook for inflation in 2007-08 in the first quarter review remained unchanged at five per cent,