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ECONOMY STILL UNDER PRICE PRESSURE

Submitted by TheIndiaStreet on July 18, 2008 - 2:58pm.
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by Bharat Ratna


  • Mr P Chidambaram, Finance Minister said, there is still pressure on prices, but monetary measures have started having impact on the growth of money supply.

  • The inflation has already reached to 11.89 near to the 12 per cent mark.

  • RBI had last month raised short-term lending (Repo) rate by 0.75 per cent to 8.5 per cent and increased the mandatory cash requirements for banks by 0.50 per cent to 8.75 per cent, to squeeze money supply for taming inflation

  • He further told "So if these monetary measures take effect, Governor expects some moderation (in inflation) over a period of time."

Finance Minister P Chidambaram on Thursday said there is still pressure on prices, but monetary measures have started having impact on the growth of money supply.

After the Cabinet meeting in New Delhi, Mr P Chidambaram told reporters, "I met RBI Governor Y V Reddy. Governor said there is still pressure on prices ... I am in broad agreement with him."

RBI Governor Mr Y V Reddy informed the Finance Minister that it would take some time before the monetary measures start showing effect on prices.

India's inflation, based on the wholesale price index (WPI), accelerated to 11.89% in the week ended June 28, the fastest pace since 1995. The weekly inflation figure is scheduled to be released at 5 p.m. today. Here afterwards, the inflation data would be released on Thursdays instead of Fridays.

Mr Reddy also informed to the Finance Minister that there are signs of monetary measures yielding some results as money supply reflected by growth of M3 (broad money supply) has started slowing down a bit.

M3 includes currency in circulation, demand and time deposits with the banks, credit to commercial sectors, foreign exchange assets of the banking sector and saving deposits of post offices.

He further said that there are some signs of tightening of liquidity as you can see from call money rates.

On tight liquidity condition, the overnight interbank call money rates escalated to 7-9.1 per cent as on Wednesday.

RBI had last month raised short-term lending (Repo) rate by 0.75 per cent to 8.5 per cent and increased the mandatory cash requirements for banks by 0.50 per cent to 8.75 per cent, to squeeze money supply and circulation for taming inflation.

Mr P Chidambaram added, "So if these monetary measures take effect, Governor expects some moderation (in inflation) over a period of time."

High prices of crude oil and food items, inflation 11.89 per cent are giving good hand to the opposition parties to attack the UPA Government in an election year.

The central bank is expected to take further tightening measures, including the interest rate revision, to cool the demand and check the price rise when it reviews its credit policy on July 29.

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