The regime of tightening monetary policy can be reversed only when inflation shows definite signs of decline, said C Rangarajan, chairman, economic advisory council to prime minister here today.
Speaking at an interactive session on the current economic scenario of the economy, Rangarajan said, “The primary responsibilty of the central bank is to bring down inflation. We must use all policy measures, monetary and fiscal measures, to bring down inflation. We must bring it down to the level of five to six per cent,' he said. As on October 2011 , the headline inflation in wholesale price index at 9.7 per cent.
Food inflation eased to 10.63 per cent for the week ended November 5 from 11.81 per cent in the previous week. However, prices of some vegetables, especially tomato, continued to surge.
'The non food inflation still is 7.5 per cent, which is way above the comfort zone of 3-4 per cent,' he said.
Rangarajan said that headline WPI inflation would remain high till December 2011 . “We must not push for economic growth beyond 9 per cent. This will create inflationary pressur and current account deficit,” he said.
'One could expect significant easing in the last quarter of fiscal year and inflation may come down to seven per cent in March 2012 ,' he said.
On the outlook of the gross domestic product (GDP )growth for the present year. Rangarajan said, “ I am concerned about the growth in the present year. While growth may pick up in the second half, the overall growth rate in industry will be well below the initial expectation of 7 per cent,” he said.
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Earlier, the Economic Advisory Council had had estimated growth rate of 8.2 per cent this fiscal.
Diesel price decontrol
On decontroling diesel prices, Rangarajan said that the “Decontrol should happen at an appropriate time. At this time if diesel prices are decontrolled, probably it would lead to inflation,” he said.
Recently, Kaushik Basu, Chief Economic Advisor, had said freeing of diesel prices would eventually cool down inflation, which should ideally be below 5 per cent.
'The rationalisation process in the pricing of petroleum products is still to be completed and this may have an impact on price in the coming months,'he added.
Falling Currency
Rangarajan hinted that the Reserve Bank of India should intervene in the currency market, only when there is volatility in the market.
'Industry in India is mature enough to take care of fluctuating interest rate. The RBI should intervene to modify or intervene in the currency market, only when here is volatility,' he said.