Concerned over worsening political turmoil in West Asia and the impact of rising global crude oil prices on the domestic economy, the finance ministry has suggested the Reserve Bank to focus on containing inflation.
An indication to this effect was given by Finance Minister Pranab Mukherjee to the Reserve Bank of India (RBI), which is slated to announce its mid-quarterly review of the monetary policy on March 17.
The central bank has, for the seventh time since March 2010, raised the key policy rates to tame inflation, which of late has started declining.
However, with the surge in global crude oil prices following political turmoil in the MENA (Middle East and North Africa) region, it is unlikely that inflation would continue to fall in the months ahead.
Mukherjee, in his address to the RBI Board last week, stressed on the need for sustaining post-crisis economic recovery and growth momentum, while keeping inflation in check against the uncertainty of oil price rise.
“This (keeping inflation in check) is essential for furthering the government’s agenda on inclusive development,” the minister had told the central board of RBI, headed by Governor D Subbarao.
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Crude prices in the global market have escalated to $116 a barrel. India is 75 per cent dependent on oil imports and such a spurt would have adverse affect on the economy.
The government and RBI have been under pressure due to inflationary pressures in the economy, particularly the high food prices.
Food inflation, though declining, has been in double digits for the most of the current financial year. The latest data puts the food inflation at 10.39 per cent for the week ending February 19 in comparison to the year-long period.
Further, the headline inflation has also been falling; it declined to 8.23 per cent for January from 8.43 per cent in December. However, this is still much above the comfort level and the government expects it to descend further to 7 per cent in March.