Fear of inflation: RBI to tighten monetary policy
FOOD inflation in India soared by over 17 per cent in the 12 months ending November 21, official figures showed yesterday, raising pressure on the central bank to tighten monetary policy.
The food price index climbed 17.47 per cent in the 12-month period, according to government figures, stoked by the worst monsoon in nearly four decades.
Staples such as pulses rose over 37 per cent, while rice, wheat and fruits climbed by over 10 per cent year on year.
Overall inflation in Asia's third-largest economy is still benign at 1.34 per cent, according to figures released earlier this month.
But the central bank forecasts it will accelerate to six to 6.5 per cent by the end of the fiscal year in March, fuelled by food price inflation and an economy that is showing a robust recovery from the global crisis.
“Clearly now going forward, it (the central bank’s soft monetary stance) will have to be reassessed,” Reserve Bank of India deputy governor Usha Thorat told an economic conference in New Delhi.
The inflation figures were released as the head of a government advisory panel said food inflation had to be tamed as it could stoke more widespread price rises as India’s economy rebounds.
“Food prices must be controlled,” said C Rangarajan, chairman of Prime Minister Dr Manmohan Singh’s Economic Advisory Council.
“Otherwise, they (rising food prices) have a tendency to lead to manufacturing inflation. This will require monetary action by RBI (the Reserve Bank of India),” he said.
The central bank's policymaking committee did not take significant steps to tighten monetary policy when it met in October because it was fearful of jeopardising economic recovery.
But the economy expanded by 7.9 per cent in the second quarter from a year earlier, the fastest rate in 18 months, creating hopes of a durable rebound.
“We expect the Reserve Bank of India to start hiking rates in January” due to inflationary pressures and the recovery in economic activity, investment house Goldman Sachs said in a report.
Earlier most economists were betting that the first rate rise would come in April.
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