Inflation to remain high till November: RBI

August 18th, 2011 - 11:06 pm ICT by IANS  

Bangalore, Aug 18 (IANS) Inflation would continue to remain high in the nine percent plus range till November as projected by the Reserve Bank of India (RBI) in July, the central bank’s deputy governor Subir Gokarn said Thursday.

“The latest headline inflation (9.22 percent) is more or less in line with the projection given in our July data, indicating that it would remain fairly high at 9 percent plus range till November. So this is in consistent with the projected data,” Gokarn told reporters on the margins of an event here.

According to the latest official data, the headline inflation based on the wholesale price index declined marginally to 9.22 percent in July, the lowest level in eight months, from 9.44 percent in June.

Though food inflation declined to 9.03 percent for the week ended Aug 6, as compared to 9.9 percent in the previous week, Gokarn said it would also remain high due to transitional elements and spikes in some commodities on account of supply disruptions.

“The two factors which are keeping inflation high are global commodity prices and domestic demand. Some changes in these two drivers can moderate inflation. We are keeping a close watch on them,” Gokarn said after delivering an address on “Inflation and Growth” at a meeting organised by the Federation of Karnataka Chambers of Commerce and Industry (FKCCI).

Admitting that the latest global scenario after the downgrading of the US sovereign debt rating and deepening of the European debt crisis added to the element of uncertainty, the deputy governor said it remains to be seen what impact it would have on India in terms of portfolio allocations.

“We have to see whether the impact is going to be positive for India and the emerging markets. If we remain in the growth trajectory and have credible signs of inflation easing off, it might well work in favour of us because portfolio allocations are moving towards emerging markets for safe returns,” Gokarn asserted.

With forecasts of slower economic recovery in the US and prolonged sovereign debt crisis in Europe, global liquidity will have investors look for good returns, which will be determined by domestic factors in countries like India.

“If we have good macro economic conditions, we will continue to attract investments and capital or investment flows will not dry up. It all depends on how we are going to manage the economy,” he said.

Noting that the impact of the global scenario so far had been on financial markets and commodity prices, Gokarn said the fact that they were changing was a good sign.

“We think that moderation in demand that we are seeing this year will help inflation decline along with potential softening of commodity prices. Growth change will be in more consistent with the moderate inflation projection,” he added.

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