New Delhi, June 14 : Describing the rise in inflation to above 9 per cent as “upsetting”, the Prime Minister's Economic Advisory Council today pitched for further tightening of the monetary policy by the RBI at its next review, which is due on Thursday.
“I think the inflation numbers are in a sense upsetting ... We need to address the issue of inflation even more strongly. We need to use more monetary and fiscal policy to contain inflation,” PMEAC Chairman C Rangarajan told reporters here.
His reaction came after the release of the latest data, which showed headline inflation going up to 9.06 per cent in May from 8.66 per cent in April on the back of rising prices of manufactured products and petrol.
Asked about the expected hike in policy rates by the Reserve Bank at its mid-quarterly review on June 16, Rangarajan said: “... I think the RBI will probably look at the inflation issue more seriously and will take some action... (it) will probably decide to do in the context of the high level of inflation.”
He, however, refused to cite any numbers on the quantum of the hike in short-term lending (repo) and borrowing (reverse repo) rates.
“I do not know what the RBI will do, but I think the concern regarding inflation will be very dominant,” he said. The RBI has already hiked key policy rates nine times since March, 2010, to curb demand and tame inflation. With headline inflation remaining high, it is now almost certain that the apex bank will go for another hike at its June 16 mid-quarterly review.
Experts have said that such action is inevitable and the RBI has also said in recent times that taming inflation is the biggest challenge before it.
The PMEAC chief also favoured deregulating diesel prices.
“The oil marketing companies are losing in a big way. If the diesel prices are not raised, then the burden on the Budget will also increase... We need to move toward adjusting the diesel prices in line with international crude prices,” Rangarajan said.
He, however, refused to comment on any timeframe for deregulating diesel prices.
The oil marketing companies had in mid-May hiked retail prices of petrol, which was deregulated last year, by over Rs 5 a litre. However, the price of diesel and LPG prices was not increased, as these are still in the controlled list. Oil firms have been saying that the regulated prices have been hurting them as global crude rates continue to hover around USD 100 per barrel, mainly on account of the conflict in the Middle East and North Africa region.
Last month's petrol price hike was reflected in the May inflation numbers.
Petrol prices went up by 27.31 per cent on an annual basis. Overall inflation in the fuel and power segment stood at 12.32 per cent year-on-year.
Prices of manufactured products, which have a weight of around 65 per cent in the WPI basket, went up by 7.27 per cent year-on-year in May.
In its monetary policy for 2011-12 released last month, the RBI had said that high prices of global commodities, particularly crude, will continue to drive inflation upward.
It had projected inflation to average 9 per cent for the first six months of 2011-12. PTI
