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Inflationary Pressures May...

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The central bank fears the situation may worsen in case of a hike in global oil prices which as such have not been fully passed on to consumers in India.

Expecting that global crude prices would remain high due to tight supply conditions, RBI said in first quarterly review of Macro Economic and Monetary Developments that "the pass-through in case of administered petroleum products is still incomplete".

The government on June 5 hiked the prices of petrol, diesel and cooking gas which had catapulted inflation to double-digit mark. The increase however did not fully cover the rising prices in global markets, RBI said.

The central bank also said inflationary pressures are likely to be there for some time.

"As the potential inflationary pressures from international food and energy prices appear to have amplified and, by current indications, are likely to remain so for some time," it said.

In Tokyo, Finance Secretary D Subbarao also said inflation may accelerate from a 13-year high and a further interest rate increase is an "obvious solution".

Global investment banker Goldman Sachs expected RBI to increase short-term lending rate (repo) and mandatory deposit rates of banks with the central bank (CRR) by 25 basis points each tomorrow as inflation is much above the RBI's comfort zone.

However, chambers and bankers called for maintaining a status quo in monetary policy of the RBI since it would harm the growth prospects.

The Reserve Bank quoted US Energy Information Administration (EIA) as saying that global supply uncertainties, combined with significant demand growth in China, the Middle-East and Latin America, are expected to continue to pressure oil markets. The central bank said weighted contribution of fuel, power, light and lubricants group to wholesale prices based inflation rose to 30.5 per cent as on July 12, 2008 against a decline of 6.9 per cent a year-ago.

However, manufactured products group was the major driver with weighted contribution of 49.9 per cent, down from 55.9 per cent a year ago.

Primary articles group chipped in 19.8 per cent against 51.1 per cent a year ago.

While global metal prices eased somewhat during the first quarter of 2008-09, food prices firmed up, RBI said.

"The supply side pressures on global food prices do not appear to be abating, especially with the year ending global stock of major crops at multi-year lows, albeit with some improvement in prospects more recently," it said.

Inflation, based on year-on-year variation in consumer price indices increased further during the first quarter of 2008-09 mainly due to increase in food prices and services prices, the review said.

Various measures of consumer price inflation were placed in the range of 6.8-8.8 per cent during May/June 2008 as compared with 6-7.9 per cent in March 2008 and 5.7-7.8 per cent in June 2007.

Even though global financial markets came under stress again in June, this sector remained orderly in India.

The review pointed out that interest rates in the money market mostly remained within the range set by repo and reverse repo during the quarter.

(PTI)


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