Reddy sketches the gloomy picture of inflation

Responding to a parliamentary panel, Y V Reddy, the Governor of Reserve Bank of India on Wednesday told that inflation situation isn’t likely to come to one digit in the next six months as global economy has reached into the state of ‘stagflation’, the economic situation which amalgamates high inflation rate with low economic growth.

The Finance Minister P Chidambaram too reiterated the same on Thursday (July 17) by saying that the economy is still under inflationary pressure. He also said that RBI Governor expects that the monetary measures taken up by the central bank would certainly be effective in bringing down some reposition in the pressure on prices.

Earlier on Wednesday, the RBI Governor cited that the situation of ‘stagflation’ of the world economy may slowdown the growth rate of India due to sustainable position of high inflation and the country can not achieve it’s projected target of economic growth set at 8.5-9%; the growth rate may slip down to 7.5 percent.

A Parliamentary standing committee led by BJP MP Ananth Kumar had asked the question of rising inflation in the country while in the western countries, it was not so high, and for instance, Britain has below four percent of inflation. Responding to that, RBI governor said, “It is incorrect to compare India with developed European nations or Japan as those are developed nation, while in the developing nations, India’s economic situation is not as bad as in some others.”

The panel committee also raised the question about rising rate of home loans, which is putting pressure on the consumers. Last month, RBI had raised the repo rate, the rate at which RBI lends securities and money to other banks and Cash Reserve Ratio, the slice of amount in cash which banks deposit to RBI by 50 basis points.

The rising of repo rate affects the borrowing while the CRR rising sucks out the liquidity from the market.

Reddy has also indicated that in its quarterly credit policy review, which is scheduled on July 29, RBI can take some more measures to tame inflation. That means, another round of rate hiking is possible, as experts assume.

Since February, the unpleasant inflation is continuously soaring and crossed the 13-year high mark; at present it is marching to the 12 percent mark.

The rising prices of food grains, food products, cement, edible oils and crude oil had pumped the inflation, while the skyrocketing prices of crude oil had led the government to hike the fuel prices that had fuelled the price rise in all commodities.