labels: rbi, economy - general
RBI says underlying price pressures remainnews
29 January 2007

Despite the pre-emptive monetary and fiscal steps having helped to some extent in containing them, the underlying inflationary pressures remain in the Indian economy, the Reserve Bank of India (RBI).

On 31 January the apex bank meets to for a quarterly review of the annual credit policy.

In its quarterly review of macroeconomic and monetary developments, RBI said that consumer price inflation remained at higher levels, largely reflecting the impact of food prices.

The bank's report said, "Pre-emptive monetary and fiscal measures along with the moderation in fuel prices could have helped to some extent in containing inflationary expectations, although underlying inflationary pressures remain."

The report also said that economic growth was likely to remain robust during the last quarter of FY2006-07, after having grown at an annual 9.1 per cent. In the last three year's the economy has grown at an average of 8 per cent.

In the week ended 6 January, inflation (wholesale price index) was at a two-year high 6.12 per cent, which declined to 5.95 per cent the following week. RBI estimate of the inflation march at the end of March is 5.0-5.50 per cent.

The consumer price index (CPI) has risen faster than the WPI since November 2005, reflecting a demand-supply mismatch in food articles, and their higher weighting in the CPI.

The central bank said the rapid pace of expansion in the economy had added to inflation pressures, implying that consumers had more purchasing power to spend on food items but, without a matching growth in the production of food articles.

The RBI report says that the annual rise in the CPI for industrial workers was 6.3 per cent in November, while the annual CPI rise in December was 6.9 per cent for urban non-manual employees, 8.9 per cent for agricultural labourers and 8.3 per cent for rural labourers.

The annual growth in bank credit currently is about 30 per cent and money supply is rising at an annual 20 per cent, above RBI's target of 15 per cent.

The review said the combined deficit of state government and the centre was expected to decline by between 0.7 per cent and 0.9 per cent of GDP in 2006-07 with the increase in tax revenues and targeted development spending.

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RBI says underlying price pressures remain