Inflation changes Chidambaram’s tone on rate cuts

March 15th, 2008 - 11:56 pm ICT by admin  

A file-photo of P. Chidambaram

New Delhi, March 15 (IANS) With inflation again creeping up to worrisome levels, Finance Minister P. Chidambaram Saturday virtually ruled out any government intervention to ease interest rates. Chidambaram, who hoped for cheaper credit at least on housing one week ago, changed his tone Saturday saying the Reserve Bank of India (RBI) would determine rate policies.

Speaking at the India Today Conclave, the minister said: “We are not insulated from international commodity or crude prices.

“Interest rate policies are determined by the RBI. The main purpose of interest rates is to contain inflation. Please remember India is not entirely insulated from rising commodity prices.”

He said crude oil prices were $37 a barrel in 2004 and moved up to $67 in April 2007, $93 this February and now to $110. Similarly, he added, palm oil moved up from $471 a tonne to $710, $1,777 and $2,270 during the period.

“So long as there is a threat of inflation, we have to trust the RBI to use interest rates in order to contain inflation and to dampen inflationary expectations,” Chidambaram said.

His comment came in the backdrop of India’s wholesale price index-based inflation rate rising to a nine-month high of 5.11 percent for the week ended March 1, above the central bank’s 5 percent threshold.

Speaking in Lok Sabha Friday, Chidambaram said: “Inflation is on the rise. It is a matter that causes worry to any government.”

He admitted that there was a slowdown in the Indian economy, but added that he was optimistic of gross domestic product (GDP) growth reaching 8.8 percent during the current fiscal.

“The idea is to maintain the same batting average. Adam Gilchrist is here,” Chidambaram said, referring to the presence of the former Australian cricketer in the audience. “The question is how to make it happen.”

“Industry will continue to grow at a clipping pace,” the finance minister said.

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