‘Monetary policy measures cannot check inflation’

June 22nd, 2008 - 2:56 pm ICT by IANS  

New Delhi, June 22 (IANS) Monetary policy measures cannot check inflation, say a majority of Indian companies, which expect inflation to remain above seven percent till the end of 2008. This is brought by a survey on inflationary expectations, carried out by the Federation of Indian Chambers of Commerce and Industry (FICCI) among 317 companies.

It said a majority of them were of the view that the current rate of inflation is largely due to factors that cannot be influenced by the monetary policy measures.

“Rising oil prices, rising commodity prices and rising food prices are a global phenomenon and these factors cannot be influenced through the monetary policy. It is therefore important that the authorities take a re-look at the anti-inflationary package,” the survey report said.

“Industry is under tremendous cost pressure on account of rise in the prices of raw materials, oil and oil products, and rise in power costs, wages and salaries and interest burden,” it said.

All these factors together have put a huge dent on the margins and on the operating performance of the companies, forcing many of them to partially offset this pressure through an increase in prices.

Given the present situation, India Inc. fears that interest rates would remain high and possibly go up further in the near term.

Close to 50 percent of the participants said that interest rates should be brought down while 37 percent said rates should stay at the present level. About 14 percent of the survey participants opined that the rates should go up.

However, an overwhelming majority of 88 percent of the participants feel that interest rates would either remain the same or would further go up in the near term.

Among this set of respondents there is an almost equal distribution, with 44 percent saying interest rates would remain at the current levels over the next six months and the other 44 percent saying the rates would rise further in the coming six months.

These results can be interpreted as an acknowledgement of the central bank’s tight monetary stand and of a likely further tightening of the monetary policy in the near term given the present inflationary situation.

The inflationary pressure in the economy is showing no signs of weakness, which from a low of 4.46 percent in January 2008 jumped to 11.05 percent for the week ended June 7.

Nearly 68 percent of the respondents feel that the current inflation rate would be either maintained or it would further increase over the next six months.

While 38 percent of the participants said inflation would continue to be in the range of seven percent to eight percent for the next six months, 19 percent said it would remain in the range of eight percent to nine percent. About six percent of participants feel that inflation would be in the range of nine percent to 10 percent.

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