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Surging inflation a cause for concern: Volcker

india Updated: Feb 20, 2007 09:17 IST
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India's surging inflation was a matter of concern but the Reserve Bank's monetary response to the issue was on track, renowned economist Paul Volcker on Tuesday said.

As a former central banker, "I always worry about inflation and it has to be kept under check", said the former chairman of the US Federal Reserve, adding the RBI was dealing with the issue.

He did not subscribe to the Keynesian theory that a small dose of inflation had a multiplier effect on growth. On the contrary, inflation had a multiplier effect in pushing up prices, Volcker noted.

Inflation was dangerous for any country and it needs to be kept under check to maintain growth momentum.

Inflation in India recently touched 6.73 per cent and has been above RBI's projection of five to 5.5 per cent, forcing the central bank to hike the cash reserve ratio of banks by one per cent in the past three months and to raise key short-term rates four times in the past year.

Apart from monetary measures, the Central government had to take several fiscal measures, including a cut in fuel prices, a reduction in customs duties on essential commodities and a ban on forward trading in certain pulses.

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