The Hindu : Front Page : Inflation inches closer to 12%

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Friday, Aug 01, 2008
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Inflation inches closer to 12%

Special Correspondent

NEW DELHI: After decelerating to 11.89 per cent a week earlier, which now appears to be more an aberration rather than a trend, the rate of inflation inched up to 11.98 per cent for the week ended July 19 on account of higher prices of certain food and manufactured products.

With the wholesale price index-based inflation on a northward march yet again and now just a little below the psychologically crucial 12 per cent mark, the stringent measures taken in anticipation by the Reserve Bank of India on July 29 during its quarterly review of monetary policy now stand immensely justified, despite the sighs expressed by India Inc.

As part of its ongoing efforts to tame inflation, the RBI had hiked the short-term lending (Repo) rate by 50 basis points to nine per cent with immediate effect to render bank loans dearer.

Alongside, it had also announced a 25 basis points increase in the cash reserve ratio (CRR) — the mandatory deposits that banks have to park with it — so as to suck out another Rs. 8,000 crore from the monetary system and thereby help cool prices.

However, considering that the hike in CRR is to come into force only after August 30, the effect of the twin anti-inflationary measures is likely to be discernible after a reasonable time lag. RBI Governor Y.V. Reddy had noted that the main thrust of the policy was to bring down inflation to seven per cent by March next year. In its assessment of the WPI data, the Finance Ministry maintained that inflation, on a week-on-week basis, “has continued to remain stable” and was “marginally higher”.

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