RBI has headroom for rate hike: Pronab

At a time when the country is reeling under inflationary pressure, principal advisor to the Planning Commission Pronab Sen today said the Reserve Bank of India (RBI) had some headroom for rate hike of around 50 basis points.

“There is some headroom left for the RBI to hike rates by about 50 basis points. Interest rates are still down compared to that prior to the global financial meltdown three years ago,” he said.

“We already have six rate hikes recently, but still to touch the pre-crisis period level — the normalised rates,” he said on the sidelines of Intaglio 2011, an international business summit, at the Indian Institute of Management, Calcutta.

In the week ended December 25, food inflation was at 18.32 per cent. The overall inflation was 7.48 per cent in November. “This is worrying. The November figures were not expected to be so high. Food prices are also affected by the wage pressure,” he said.

Sen said monetary policy measures can be used to tame inflation but at the very high price of sacrificing growth.

“Currently, regarding food inflation, the government doesn’t have too much to do. We don’t have enough tool for it. Inflation in edible oil, food grains and pulses are not much higher as compared to horticulture, animal husbandry, fruit and vegetables.”

He expressed concerns over rising oil prices. “Oil prices have gone up. If the trend continues, we will be under tremendous pressure. This has to be maintained, otherwise we will be forced to depend more on overseas exports, for which we don’t have enough transportation facilities,” he said.