Inflation will come down to 7 percent by March: RBI

October 25th, 2011 - 4:22 pm ICT by IANS  

Pranab Mukherjee Mumbai, Oct 25 (IANS) The Reserve Bank of India (RBI) Tuesday said inflation would start moderating from December and come down to 7 percent by the end of the current financial year from around 10 percent now.

“Inflation rate will begin falling in December 2011 and then continue down a steady path to 7 per cent by March 2012. It is expected to moderate further in the first half of 2012-13,” RBI Governor Duvvuri Subbarao said in the second quarter monetary policy review.

To curb inflation, the central bank Tuesday hiked key policy rates by 25 basis points, the 13th increase since January 2010.

The repurchase rate, or the interest the central bank levies on short-term borrowing by commercial banks, has been raised to 8.5 percent from 8.25 percent. Automatically, the reverse repurchase rate, or interest on short-term lending, gets hiked to 7.5 percent from 7.25 percent.

Reacting to the RBI’s move, Finance Minister Pranab Mukherjee said the rate hike would help bring down inflation to a comfortable level soon.

“I do hope that the decision of RBI to enhance repo rate and reverse rate will have its impact on inflation, of course it will have some impact on growth also, but the situation is difficult and in a difficult situation you can not expect to have a simple solution,” Mukherjee told reporters in New Delhi.

Inflation has remained almost near double digit since January 2010, despite an aggressive monetary tightening by the central bank and the claims of a series of fiscal measures by the government.

Food inflation rose sharply to cross double digit levels at 10.6 percent for the week ended Oct 8 as against 9.32 percent in the previous week. The headline inflation based on the wholesale price index was recorded at 9.72 percent in September, according to the latest official data.

The RBI governor said inflation was likely to remain near double digit till November.

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