Prices keep soaring; will take time to ease, says FM

Inflation rose to 7.33% for the week ended April 12 due to higher prices of food, fuel, minerals and steel, but analysts expect the central bank to keep rates unchanged at its policy review meeting next week. With the number of fiscal and monetary measures taken by a concerned government yet to have a calming effect on prices, Union finance minister P

Chidambaram told Parliament on Friday that although anti-inflationary measures may moderate growth, the government was attempting to sustain ?high growth with price stability.?

Headline inflation, which is based on the wholesale price index (WPI), stood at 7.14% in the previous week of the current fiscal and at 6.09% in the corresponding week of 2007. Chidambaram said inflation will ?moderate over time?, but analysts expect it to hover around 7% for some more time to come. ?In coming months, we will see inflation close to 7%,? said Crisil principal economist DK Joshi.

The current rate presents a critical dilemma to the Reserve Bank of India (RBI), which would unveil its annual Credit Policy on April 29, to balance growth and inflation. ? In the April 29 policy, we expect the RBI to keep all rates unchanged, largely because of slowing growth,? said Lehman Brothers economist Sonal Varma.

But HDFC Bank?s chief economist Abheek Barua said a tighter monetary policy is expected. ?A hike in the repo rate and selective credit controls are possible,? he said. RBI has last week raised cash reserve ratio by 50 basis points to suck liquidity from market in order to check price rise.

Prime Minister Manmohan Singh assured the Left parties on Friday that the government was taking necessary steps to contain inflation. He said the government was confident of increasing procurement of food grains, which would help in controlling food inflation.

The government has already withdrawn export incentives on steel and cement, and banned cement exports to increase domestic supplies. It has also scrapped import duties on most edible oils and banned exports of non-basmati rice.

On Tuesday, Chidambaram had said that the government would consider more export curbs and fiscal moves to tackle rising inflation if necessary.

The government is also moving its anti-inflation campaign beyond price controls and duty cuts, towards a more subtle strategy that includes tighter policing provisions for commodity market trading, splitting the commodity market into priority and non-priority segment and cutting FCNR deposit rates to curb capital inflows.