Rangarajan: No moderation in inflation for RBI to change policy

Citing the near double-digit inflation, the Prime Minister's Economic Advisory Council (PMEAC) on Friday said there is no sign of moderation in the rate of price rise to prompt the Reserve Bank to change its policy of monetary tightening.
    
"It is not a very comfortable situation. For the monetary policy stance to change, inflation has to come down and show signs of definite decline. But that kind of an indication has not come...," PMEAC Chairman C Rangarajan told.

His comments followed the release of data which showed that the overall inflation remained close to the double-digit mark, at 9.72 percent, in September on account of costlier food products, fuel and manufactured goods.
    
Inflation, as measured by the Wholesale Price Index (WPI), stood at 9.78 percent in August.
    
For 10 months in a row, inflation has remained above the 9 percent mark.
    
According to experts, the elevated inflation level is likely to put pressure on RBI to continue with its policy of monetary tightening.
    
The apex bank has hiked key policy rates 12 times since March 2010 to tame inflation. The bank's next monetary policy review is scheduled for October 25.

During the central bank's meeting at Jaipur this week, RBI Governor D Subbarao said the rate hikes have affected industrial activities, but asserted that inflation continues to remain above the comfort level of around 5 percent.
    
He also said that interest rates would come down only if inflation eased.
    
Meanwhile, in its Economic Outlook for 2011-12, the PMEAC had said that inflation is likely to remain elevated till the third quarter of the fiscal because of high prices globally.

The Central Bank of India boosted Interest Rates

India’s 10-year bond yield was near its highest level in two months after the central bank boosted interest rates this week for the fifth time in 2011 to damp inflation.

The Reserve Bank of India raised the repurchase rate by 50 basis points to 8 percent on July 26, double the increase forecast by most economists in a survey.
Finance Minister Pranab Mukherjee said yesterday he couldn’t say if the central bank has reached the end of the rate-rise cycle.

 Anoop Verma, a fixed-income trader at Development Credit Bank in Mumbai said, “Bonds are likely to trade in a narrow range around current levels,”. “Investors are probably refraining from adding to their holdings after the rate increase as inflation is still a concern.”

According to central bank data, The yield on the 7.8 percent government debt due April 2021 fell one basis point, or 0.01 percentage point, to 8.44 percent in Mumbai,  It was 8.45 percent at yesterday’s close, the highest level since May 27.

Inflation has held above 8 percent every month since the beginning of 2010. Wholesale prices rose 9.44 percent in June from a year earlier after climbing 9.06 percent the previous month, according to the latest government data issued on July 14.

The commerce ministry will publish food inflation data for the week ended . Prices rose 7.58 percent from a year earlier the previous week.