praveen
18-09-2009, 07:08 AM
The annual rate of inflation came in at 0.12% for the week ended September 5, ending the 13-week decline in the wholesale price index (WPI) as prices of food articles showed no signs of abating.
Inflationary pressures are beginning to build up with retail inflation already in double digits. With the comfort of negative inflation for the most widely-watched WPI also gone, economists expect the Reserve Bank of India (RBI) to take steps to suck out excess liquidity from the system and even resort to selective credit control.
However, indications are that RBI is not likely to take any steps till there is more conviction about the economic recovery. At a conference in the Capital earlier this week, central bank governor Duvvuri Subbarao had said, “We will not exit from the expansionary monetary policy unless we are sure that recovery is secured... But soon after the recovery is secured, we have to unwind the accommodative monetary policy.” RBI has already factored in inflation touching 5% by the year-end.
The central bank has cut interest rates six times between October 2008 and April 2009 and pumped in liquidity to boost the economy reeling under the worst global recession since the Great Depression.
Reverse repo—the rate at which RBI sucks out liquidity and repo—the rate at which RBI injects liquidity—are currently at 3.25% and 4.75%, respectively. These rates were at 6% and 9% when RBI started easing policy in response to the global financial crisis. There is close to Rs 1.5 lakh crore in the system, internal calculations by treasury benches at various banks show.
Inflationary pressures are beginning to build up with retail inflation already in double digits. With the comfort of negative inflation for the most widely-watched WPI also gone, economists expect the Reserve Bank of India (RBI) to take steps to suck out excess liquidity from the system and even resort to selective credit control.
However, indications are that RBI is not likely to take any steps till there is more conviction about the economic recovery. At a conference in the Capital earlier this week, central bank governor Duvvuri Subbarao had said, “We will not exit from the expansionary monetary policy unless we are sure that recovery is secured... But soon after the recovery is secured, we have to unwind the accommodative monetary policy.” RBI has already factored in inflation touching 5% by the year-end.
The central bank has cut interest rates six times between October 2008 and April 2009 and pumped in liquidity to boost the economy reeling under the worst global recession since the Great Depression.
Reverse repo—the rate at which RBI sucks out liquidity and repo—the rate at which RBI injects liquidity—are currently at 3.25% and 4.75%, respectively. These rates were at 6% and 9% when RBI started easing policy in response to the global financial crisis. There is close to Rs 1.5 lakh crore in the system, internal calculations by treasury benches at various banks show.