The Reserve Bank of India (RBI) today said if crude prices continue to fall it will help bring down inflation, but asserted the trend of falling rates is yet to be established.
"If crude oil prices soften and if they continue to soften, clearly that is going to have some bearing on domestic inflation," Reserve Bank Deputy Governor Subir Gokarn told reporters at a CII event here.
Since the US sovereign ratings downgrade on Friday last week resulting in market meltdowns across the globe, prices of many commodities, including crude, have been falling substantially.
In Asian Markets, the benchmark West Texas Intermediate fell to around $82 per barrel from over $100 per barrel last week, while the Brent crude is trading at $107 per barrel as against $125 a week ago.
"We are trying to evaluate the impact over last few days... It is just too early to make any long term projection," he added.
India imports over 75% of its crude requirements.
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Gokarn, however, said that the trend of falling crude prices is yet to be established.
Gokarn said that historically periods of high growth have been associated with rising rate of prices. He added that "inflation has to be managed".
"The question is you manage it in a way that it puts enormous burden on growth process or to the point where it puts some burden on growth process not to the point where entire dynamic of the economy is completely thwarted. That is the challenge we are facing," he said.
The overall Wholesale Price Index (WPI) based inflation has remained close to the double digit mark during the April-June period. In June, the figure stood at 9.44% mainly on account of high prices of petroleum products.
To control inflation, RBI has hiked interest rates 11 times since March, 2010. India Inc has said that repeated rate hikes have affected investments by raising borrowing cost.
Asked about the persisting inflationary pressures, Gokarn said that structural factors like supply side constraints, demand-supply mismatch and lack of proper policies have contributed to sustained high price situation.
In this regard, he said the recent jump in food inflation to almost double digit mark in July-end is possibly on account of dislocation in production and transportation.
In its monetary policy the RBI had said inflation would remain at elevated levels in the next few months and average 9% during the first half of the fiscal.