Inflation to fall in 3-4 months, says Ahluwalia

Updated on May 14, 2007 03:13 PM IST
The inflation rate will edge lower in the next three to four months as the lagged impact of recent monetary tightening kicks in, says Planning Commission Dy Chairman Montek Singh Ahluwalia.
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Reuters | By, Mumbai

The inflation rate will edge lower in the next three to four months as the lagged impact of recent monetary tightening kicks in, a senior government official said in a newspaper interview.

Annual inflation rate hit a two-year high of 6.7 per cent in early 2007 but has since fallen to below 6 per cent, due to a spell of aggressive monetary tightening, lower duties and the arrival to market of the latest wheat harvest.

"The impact of the anti-inflationary policy operates with a lag. It will slowly bring inflation down," Montek Singh Ahluwalia, deputy chairman of the Planning Commission, told a newspaper on Monday.

"I am very confident that you will see inflation coming down in the next three-four months, gradually, to lower and lower levels," Ahluwalia said.

The wholesale price index, the most commonly-watched price indicator in India, rose 5.66 per cent in the 12 months to April 28, down from the previous week's reading of 5.77 per cent but still above the central bank’s comfort level of 5 per cent.

The central bank has raised its main lending rate five times in less than a year and tightened reserve requirements for banks three times since mid-December to slow inflation and put a brake on robust credit growth.

The government has lowered petrol and diesel prices and cut import duties on steel, aluminium and industrial materials as well as palm and sunflower oil to help slow inflation.

Asia's fourth-largest economy is estimated to have expanded 9.2 per cent in the fiscal year which ended on March 31 and has averaged about 8.6 per cent growth for the past four years.

Ahluwalia said buoyancy in the economy had not spread as widely as it should have. While India had grown at 9 per cent in the past two years, he said that might be because demand pressures had extracted more growth from the system than the underlying sustainable supply.

"That's why there has been a little bit of overheating and we are correcting that," he said.

"The underlying growth rate at present is somewhere around 8 per cent plus, rather than 9 per cent."

He said India wanted growth to average 9 per cent for the period from 2007/08 to 2011/12, and needed to accelerate to end that period above 9 per cent, but said infrastructure must be able to support a growth rate of 9-10 per cent.

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