At 7.25%,June inflation ‘above the threshold’: RBI

Headline inflation moderated in June but remained above 7 per cent for the fifth consecutive month,prompting Reserve Bank of India Governor D Subbarao to virtually rule out a rate cut

Written by ENS Economic Bureau | New Delhi | Mumbai | Published: July 17, 2012 2:24:21 am

Headline inflation moderated in June but remained above 7 per cent for the fifth consecutive month,prompting Reserve Bank of India Governor D Subbarao to virtually rule out a rate cut as prices remained well above the RBI’s ‘comfort level.’

Official data released on Monday showed that wholesale price index (WPI) based inflation stood at 7.25 per cent in June as compared to 7.55 per cent in May. It was much higher at 9.51 per cent in June 2011.

“Above the threshold,higher inflation actually leads to loss of growth. With WPI inflation at 7.25 per cent and CPI inflation in double digits,we are way above the threshold,” Subbarao said and hastened to add that it “does not imply any action to be taken by the RBI” in the credit policy.

Overall food inflation rose to 10.81 per cent in June,from 10.74 per cent in May. While core inflation remained steady at 5 per cent,inflation in the group of ‘fuel and power’ rose to 10.27 per cent in June as against 11.53 per cent a month ago.

Subbarao,who today released a book on a collection of articles written by former RBI Governor IG Patel,said,“A relevant question in this context is,‘To what extent is the RBI acting consistent with Dr IG Patel’s dictum – controlling prices without choking investment and production?’” Subbarao said.

“Admittedly,monetary tightening has resulted in some sacrifice of growth in the short-term. That is an inevitable price to pay for price stability. In the medium term,there is no trade-off between growth and inflation,” he argued. According to Subbarao,by far the most strident criticism against the RBI has been that “even after persistent and prolonged tightening of monetary policy – raising interest rate 13 times – we have not been able to restrain inflation”.

Govt,Reserve Bank not adversaries: Subbarao

RBI Governor D Subbarao has said the government and the RBI are not adversaries. “They share common goals. Disagreement is natural. I would worry if there’s a complete agreement on everything,” he said. “Wisdom will flow out of disagreement and debate,” he said. Quoting Dr former Governor IG Patel,he said the ultimate defence for the Governor is democracy and tradition of free debate.

ENS

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