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Credit policy can`t do much about inflation: Economist

Last Updated: Sunday, May 1, 2011 - 15:17

New Delhi: Stressing that monetary policy has "serious limits" in tackling rising inflation, RBI Chair Professor at ICRIER B L Pandit on Friday made a case for expediting agricultural reforms to fight price rise.

"Monetary policy has serious limits for controlling inflation. You cannot control the levers of inflation by changing policy rates...It will not improve the supply of food, obviously not", Pandit said at an ICRIER seminar here.

The fundamental problem is neglect of agriculture and bypassing of farm sector reforms, he said, adding "we have not been doing much about agriculture".

Pointing that Central Government has a limited role to play in bringing about agricultural reforms, Pandit said the onus primarily rests with the states.

"Since agriculture is under state government`s dispensation, central bank sitting here or Ministry sitting here cannot do much", Pandit said.

RBI has hiked short term monetary policy rates – repo (lending) and reverse repo (borrowing) -- rates eight times since March 2010, to contain price rise.

As inflation remains at elevated levels, economists expect RBI to further hike both the rates by at least 25 basis points in annual Monetary Policy on May 3.

High prices of vegetables and manufactured items drove the headline inflation in March to 8.98 percent, way above the RBI`s expectation of 8 percent.

Food inflation stood at 8.76 percent for the week ended April 16 on the back of rising prices of fruits, protein-based items and onions.


First Published: Sunday, May 1, 2011 - 15:17

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