Though the inflation is currently below 5%, the bankers have said that concerns over inflation were clearly visible in the Reserve Bank of India?s quarterly review of monetary policy. “The concern over inflation is still there in the mind of the people,?? said YV Reddy, governor, RBI.
Assuming that aggregate supply management will continue to receive public policy attention and that a more active management of the capital account will be demonastrated, the outlook for inflation in 2007-08 remains unchanged, said RBI.
Accordingly, holding headline inflation within 5% in 2007-08 assumes priority in the policy hierarchy, while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4-4.5% on a sustained basis, observed RBI.
HSBC?s Asian Economics Team has said that there is some renewed tightening in 2008 as it becomes clear that inflation is far from dead in India. “Further CRR hikes will depend on the liquidity situation, but it is probably wise to pencil in a further 50bp move before year-end,?? it added.
According to bankers, the monetary tightening measures of the RBI during the first three months of 2007 have helped bring down the inflation levels from the peak of 6.69% to within its medium term target of 4%-4.5% during the last one and a half months.
Moreover, the supply side factors, such as reduction in import duties and stable oil prices also contributed to contain the inflation within the target range specified in the annual policy.
Inflation showed a marginal increase during the second half of June, primarily fuelled by increasing prices of oil and eatables. It could be an indication of the rising inflation in near future. However, it remains far from being a concern for monetary authorities right now.