The Reserve Bank of India (RBI) in its policy document said, “The objective of the policy measures being undertaken would be to bring the inflation as close as possible to the stated range of 5.0 to 5.5% at the earliest.” Further, the RBI said that it would continue to pursue the medium-term goal of a ceiling on inflation at 5.0%.

Speaking on the apex bank’s policy to curb the inflation, Madan Sabnavis, chief economist, NCDEX, said, “If we consider the average inflation rate without taking into account the distorted base data, then it can be noticed that the country’s average inflation is stable around 5%. The RBI’s measures could be seen affecting only the manufactured pricing as the cost of the credit could increase.”

However, the analysts feel that that in a couple of months time the inflation rates could be moving downward on pure statistical effect.

Moreover, the food and manufactured prices are the major components that have pushed the inflation rates to reach record high of 6.12% and not the fuel prices. It is anticipated that the finance ministry would indicate a cut in the fuel prices and ease in some of the tariffs. Also, imports of certain food items is expected to be allowed prior to the budget.

Quick Take

• RBI said that it would continue to pursue the medium-term goal of a ceiling on inflation at 5.0% • Analysts feel that in a couple of months the inflation rates will be moving downward on pure statistical effect • Food and manufactured goods prices are the major components that have pushed inflation rates to reach a high of 6.12%, and not fuel prices

RBI further said that there were three issues confronted while drafting the policy. First issue being the demand pressures which appear to have intensified, reflected in rising inflation, high money and credit growth, elevated asset prices, strains on capacity utilisation, some indications of wage pressures and widening of the trade deficit. The increased supply-side pressures in evidence from prices of primary articles and lagged response of productive capacity and infrastructures to the ongoing expansion in investment are some of the other issues.

Explaining the impact of inflation, the RBI said, “The impact of inflation is asymmetrical in our society since only about 10% of the work-force, which is in the organised sector, has an inflation hedge, while the rest do not have any inflation hedging mechanism.”