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RBI action likely soon to tame inflation

business Updated: Jun 15, 2010 19:29 IST
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The possibility of an interest rate hike gathered momentum with the Reserve Bank today stating that it is keeping its options open to take monetary actions to rein in the runaway inflation, even before the quarterly review next month.

"High inflation is a concern. Inflation is always a concern and will remain a concern (for RBI). At some stage monetary policy has to address the issue," RBI deputy governor KC Chakrabarty told reporters on the sidelines of a function in the capital on Tuesday.

If the Governor comes to the conclusion that if there is a need now, it will be done, he said, adding, "the monetary action can happen any time," Chakrabarty.

When asked whether the monetary action can be taken before the next policy review scheduled for July 27, the deputy governor said, "absolutely".

Chakrabarty further said inflation is a bigger concern for the country now tha the impact of the lingering debt crisis in Europe.

Meanwhile, Finance Minister Pranab Mukherjee also said the Reserve Bank will consider monetary policy measures to tame inflation, which as crossed double-digits.

"So far as the monetary part is concerned, the Reserve Bank will look into it, will consider it," Mukherjee told reporters on the sidelines of a tax conference in New Delhi.

"Even in the last policy announcement, 25 basis points were increased...So, as and when the Reserve Bank feels appropriate steps are required to be taken to control the inflation, it will do so," Mukherjee said.

Bankers also echoed similar views saying interest rates are under pressure, as inflation is high and liquidity remains tight due to payment towards 3G abd broadband wireless access spectrum and advance tax outgo.

"Liquidity is very tight now as it is the last day for the payment of advance tax. Liquidity in the last two days has been absorbed because of broadband spectrum payment and advance tax," Punjab National Bank chairman KR Kamath said.

He, however, added the money that goes to the government comes back into the system in two-three weeks.

"It (money flow into the system) is expected by the end of the month. Liquidity should come back by then," he added.

Union Bank of India chairman MV Nair also said interest rates are under pressure.

"Naturally, when inflation is high, bias would be upwards,' he said.