More steps in the offing: FM

Finance Minister P Chidambaram today said more measured steps would be taken to contain inflation, which was shooting up mainly because of external factors like the surge in global crude oil prices.

Chidambaram said the Reserve Bank of India Governor YV Reddy had taken steps to raise the cash reserve ratio by 0.5 per cent in two tranches. "We believe this will have an impact," he said.

"We will continue to take more steps as required. We must be patient and wait for the steps," he said without elaborating, as inflation touched 8.33 per cent last week.

Tracing the origin of the current inflationary tendencies, the finance minister attributed the surge in prices to two factors: external, on which the government had no control, and the inherited problem of liquidity estimated at Rs 60,000 crore of excess money supply.

This was not the first time inflation had breached the 8 per cent mark in recent years, officials said, pointing to the 8.84 mark touched on January 13, 2001, which continued for a month till February 17.

Also, the average inflation during 2000-01 hovered over 7 per cent without the external factor of shooting oil prices.

The single biggest contributor to the sharp rise in inflation, the government feels, is crude oil prices ruling at $40-44 a barrel.

The previous government had allowed $37 billion of foreign exchange to flow into the economy last year which pushed up the money supply from 14 to 16.6 per cent.