Inflation, not industrial growth to determine RBI's move: Rangarajan
The Prime Minister's economic panel has said inflation, and not factory output numbers, should determine the RBI's move on monetary policy, even as analysts expect RBI to further tighten money supply after robust industrial growth in April.business Updated: Jun 13, 2010 14:21 IST
The Prime Minister's economic panel has said inflation, and not factory output numbers, should determine the RBI's move on monetary policy, even as analysts expect RBI to further tighten money supply after robust industrial growth in April.
"The inflation figures for the month of May are expected very soon and that will give the indication much more than the IIP," Prime Minister's Economic Advisory Council (PMEAC) Chairman C Rangarajan told PTI.
The main factor determining the RBI's monetary policy will be the behaviour of inflation, he added.
"If the inflation figures tend to show some decline, they could take a view to tighten the policy later," Rangarajan added.
Inflation figures for May will be released on Monday. Inflation remained at an elevated level of 9.59 per cent in April, despite some moderation.
Analysts expect that the 17.6 per cent expansion in the Index of Industrial production (IIP), which measures industrial growth, in April will put pressure on inflation, prompting the RBI to tighten money supply further.
Industrial output grew in double digits for the seventh straight month, on a good showing by the manufacturing sector, particularly capital and consumer goods.
According to ratings agency Moody's, "The spike in industrial production will increase pressure on the RBI to quicken the thus far gradual pace of policy rate hikes."
Meanwhile, investment banking firm Nomura has said the RBI could hike policy rates by 25 basis points (0.25 per cent) next month and by a cumulative 75 basis points by March, 2011.
The apex bank began unwinding its monetary stimulus by upping the requirements for banks to keep cash with it (CRR) by 0.75 percentage points in January and short-term lending and borrowing (repo and reverse repo) rates by 0.25 percentage points.