Subbarao says inflation still high

Says both monetary and fiscal side have no room for stimulus

Ahead of its third quarterly policy, the Reserve Bank has said that inflation was still high and there was no room for fiscal or monetary stimulus to boost growth in slowing economy.

"When growth is slowing down you can stimulate the economy either by monetary easing or by fiscal stimulus, but both monetary and fiscal side have no room for stimulus. So that is the big concern," RBI Governor D Subbarao said while addressing IIM students last evening.

Notwithstanding expectations of interest rate cut by the Reserve Bank of India (RBI) in its quarterly monetary policy on January 29 on back of declining inflation, Subbarao said, "Inflation has come down, (it is) still high".

Although the inflation, based on movement in wholesale prices, touched the three-year low of 7.18% in December, the retail inflation continued to remain in double digit at 10.56%. It only indicates that easing WPI was not providing any relief to the consumers from spiralling prices.

The WPI inflation at 7.18% was also much above the central bank's comfort level of 4-5%. The inflation has not declined to the expected levels despite tight monetary stance pursued by the RBI to check price rise.

With industrial output contracting by 0.1% in November, the industry has stepped up its demand for interest rate cut by the RBI in its forthcoming policy.

The economic growth, which slipped to nine-year low of 6.5% in 2011-12, is expected to decline further to 5.7-5.9% in the current fiscal.