Monetary policy virtually ineffective: P. Chidambaram on inflation

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P. Chidambaram says he expects India to grow 6 percent in the 2014/15 fiscal. Reuters P. Chidambaram says he expects India to grow 6 percent in the 2014/15 fiscal. Reuters
SummaryMonetary policy has little impact on inflation, says FM P. Chidambaram.

Consumer inflation in India is entrenched due to high food and fuel prices, and monetary policy has little impact in curbing these prices, said Finance Minister P. Chidambaram on Friday.

"I have been advised that inflation has got entrenched and monetary policy does not have any or has very little impact on food prices and fuel prices," P. Chidambaram said at India Economic Conclave 2013 on ET Now television channel.

India's consumer price index inflation quickened to 10.09 percent in October, higher than 9.84 percent in September due to food and fuel prices, fuelling expectations of a rate increase by the central bank at its next policy review on Dec. 18.

"Demand (for food and fuel) is being stoked by the fact that we have high fiscal deficit and that fiscal deficit was not contained for a fairly long period, I think over a period of two years," Chidambaram said.

The Reserve Bank of India raised the repo rate by 50 basis points over October and September to fight stubborn and elevated CPI even as economic growth languished close to a decade low of 5 percent.

Chidambaram also said he expects India to grow 6 percent in the 2014/15 fiscal year ending March 2015, 7 percent the following year and 8 percent in the next.

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