With RBI help, Govt to soften inflation spike

The government today made it clear that it would take ‘‘measured steps’’ to control inflation. After a meeting of the Ca...

The government today made it clear that it would take ‘‘measured steps’’ to control inflation. After a meeting of the Cabinet Committee on Economic Affairs (CCEA) here today, Finance Minister P Chidambaram said that the inflation was not discussed but then went on to say that steps would be taken on the monetary side by the RBI and on the fiscal front by his Ministry to check inflation.

He said that this was not the first time that the inflation rate had touched the 7.5 per cent mark (for the week July 17 to 24) but added that he was not ‘‘complacent’’ on the prices front.

Over the last 48 hours, there have been half a dozen separate meetings between RBI Deputy Governor Rakesh Mohan, RBI Governor Y V Reddy and the Finance Minister besides, of course, the meeting between Chidambaram and Prime Minister Manmohan Singh yesterday.

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The RBI’s options on the monetary front could include a cut in the repo rate (or the rate at which RBI lends money to banks) which could result in banks mopping up excess money or a hike in the cash reserve ratio to cut liquidity in the money market. ‘‘The RBI will take action according to its judgement on the monetary side,’’ Chidambaram told reporters after the CCEA meet.

On the fiscal front, the Finance Ministry could agree with the Petroleum Ministry’s proposal of cutting Customs duty on petro products in a way that it would not affect the revenue targets of the Finance Ministry. ‘‘The inflation rates have been affected largely due to very sharp rise in petro prices,’’ Chidambaram said adding that ‘‘the Indian import basket for petro products last year cost $26 per barrel and this year this had already touched $37 per barrel.’’

The only way the government can avoid another price hike in petrol—which will push up inflation further—when the review comes up on the midnight of August 15/16 is if it decides to cut the Customs duty on petro goods.

	Fed Reserve pushes up interest rate

			• WASHINGTON: The US Federal Reserve boosted a key short-term interest rate by a quarter-point on Tuesday as the Central Bank continued its campaign to keep inflation under control. Fed chairman Alan Greenspan and his colleagues on the Federal Open Market Committee, the panel that sets interest rates, boosted the target for the Federal Funds Rate to 1.50 per cent.

Chidambaram warned producers taking advantage of rising international commodity prices and hiking domestic prices saying it was unwarranted. He also sought to allay fears of consumers stating that there was no need to panic as seasonal pressures on inflation would wear off as the monsoon has set in.

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Chidambaram also announced a Rs 10 per quintal hike in the minimum support price for paddy (common variety) with the kharif prices being set at Rs 560 per quintal and Rs 590 for the grade A paddy. He also announced an increase in MSP of jowar by Rs 10 (Rs 515), bajra and other grains.

The CCEA also approved an investment of Rs 601.90 crore to set up a transmission system to evacuate power from NTPC’s Sipat stage-II terminal power plant. The project is scheduled to be completed in 36 months.

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