Reserve Bank less optimistic than Pranab on growth,inflation

“During the current fiscal (2010-11),the economy would expand by 8.25 to 8.75 per cent,” said finance minister Pranab Mukherjee a few days back. Even the Prime Minister has backed finance minister’s growth expectations and expects the economy to grow at 8.5 per cent.

Inflation that is hovering around double digits at 9.9 per cent,as on March 31,is expected to start soothing from this financial year. Taking into account three major uncertainties that cloud the outlook for inflation — monsoons in 2010-11,crude prices and rising demand-side pressures — the RBI expects WPI inflation to fall to 5.5 per cent by the end of this financial year. However,the government,on the other hand,expects inflation to be around 4 per cent by the end of this fiscal.

“Long-run inflation is difficult to predict and is based on some statistical analysis done in my ministry is that inflation is now on a downward trajectory and in 2010-11 will be less than 5.5 per cent and,in fact,closer to 4 per cent with an upward bias,” Mukherjee said today.

While the country’s economy is showing strong signs of revival with industrial production growing at more than 16 per cent for the last two months. But at the same time inflation has picked up sharply.

Mukherjeee,today,said the rate hike by the Reserve Bank will gently tighten money supply and help moderate inflation. “These policies should have a gentle impact in tightening money in the economy and should dampen further inflationary pressures,” he told reporters here.