'RBI needs to view diesel, power hikes from growth angle'

Oct 03 2012, 20:25 IST
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We have recognised the likely short-term impact of diesel price revision on inflation numbers. (Reuters) We have recognised the likely short-term impact of diesel price revision on inflation numbers. (Reuters)
SummaryWe have recognised the likely short-term impact of diesel price revision on inflation numbers.

Ahead of its monetary policy review, RBI today said recent increase in diesel prices and a possible hike in power tariff will impact inflation but the central bank will have to view it from growth angle and be a "little sensitive to various adjustments that might take place".

"We have recognised the likely short-term impact of diesel price revision on inflation numbers. But we have to look at it in terms of (growth) trajectory and to the extent of helping to contain the fiscal deficit," RBI Deputy Governor Subir Gokarn told reporters on the sidelines of a conference here.

"Let's not forget that if you see a hike in diesel prices along with the hike in electricity prices, both of these will impact the (wholesale price) index," he added.

The wholesale price index based inflation rose to 7.55 per cent in August as prices of potato, wheat and pulses as well as manufactured items soared. The retail inflation, based on consumer price index was at 10.03 per cent in the same month.

In the face of consistent demand for rate cut, RBI has been steadfastly maintaining that bringing down inflation is its priority.

"... (if) more power becomes available from the grid, then people will use less diesel to generate power and the average cost of electricity might go down. So, that is going to have an impact on the overall inflation numbers as we go forward. We have to be little sensitive to these various adjustments that might take place," Gokarn said.

Last month, reacting to RBI's decision to infuse Rs 17,000 crore into the financial system by way of a cut in CRR, Finance Minister P Chidambaram had said the response of RBI on October 30 would be far more supportive of growth.

The Reserve Bank is scheduled to come out with second quarter monetary policy review on October 30.

In its mid-quarterly monetary policy review on September 17, RBI had lowered cash reserve ratio (CRR), the portion of deposits banks park with RBI, by 0.25 per cent to 4.5 per cent.

Gokarn said the policy decision would be based on the impact of "growth risks" and "inflation risks".

"It will be a holistic perspective."

Gokarn also said RBI will take the recent developments and will have discussion with stakeholders before taking a decision.

"We will take everything that has happened over the last several weeks into account and will formulate decision. The process to reach that decision is just

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