RBI mid quarterly review needs to change policy to control inflation

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By-Correspondent | Date– June 15, 2011 | Place– New Delhi

Mocking the repeated assurances of the Finance Minister of the country to control inflation, India has seen its headline inflation in May rise to 9.06 per cent. This high rise is driven by an increase in prices of manufactured goods such as edible oil, textiles, sugar, paper products, etc.

The rise has made it evident that the Reserve Bank would once again go for another round of raising interest rates at its mid-quarterly review slated for June 16. The RBI has in fact raised key policy rates nine times since March 2010.However it is mentionable that the wholesale price index (WPI) stood at 10.48 per cent during the same period a year ago while it was 8.66 per cent during the last month, as per the government data.

The International Monetary Fund has already revised the growth projection of Asian countries, forecasting a downward trend of Indian’s growth. For 2011, the IMF has projected India’s growth to dip down to around 8% owing to high inflation and overall global economic turmoil created due to rising prices of commodity goods and oil.

Though Finance Minister Pranab Mukherjee has repeatedly stated that the government is keeping a close watch on developments, both domestic as well as international and that they are keen in taming down inflation, the actual scenario shows the Reserve Bank and the Indian Finance Ministry has failed so far in controlling inflation. As understood, the lower growth projection of the country is due to RBI’s step of excessive increase in interest rates, that too repeatedly in the last fiscal.

It is an absolute necessity for the Reserve Bank of India to undertake additional policy changes to tighten its grip on the economy. All eyes are now on the mid-quarterly review of the RBI scheduled on June 16.

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