Inflation likely to fall to 6.5% by Dec: PMEAC

Prime Minister`s economic panel has said inflation is likely to decline to 6.5 percent by December from "uncomfortably high" 8.6 percent due to RBI`s steps and the expected fall in food prices on the back of good monsoons.

Updated: Oct 17, 2010, 11:44 AM IST

New Delhi: Prime Minister`s economic panel has said inflation is likely to decline to 6.5 percent by December from "uncomfortably high" 8.6 percent due to RBI`s steps and the expected fall in food prices on the back of good monsoons.

"Our own expectation is (that) by December the inflation rate would come to 6.5 percent," Prime Minister`s Economic Advisory Council (PMEAC) Chairman C Rangarajan told.

He further said that the Reserve Bank may need to raise policy rates yet again in its quarterly policy on November 2 to tame high inflation of 8.6 percent.

The RBI has raised key policy rates five times so far this year, but there has been no sign of inflation`s cooling off. The rate of price rise in September was 8.62 percent in September, up from 8.51 percent in August.

"The inflation is at uncomfortably high level. So continued actions on the part of RBI may be needed," he added.

Rangarajan said prices of vegetables and fruits, which are contributing substantially to food inflation, are likely to fall in November and December as there is usually a seasonal decline in the prices of these commodities.

Food inflation rose marginally to 16.37 percent for the week ended October 2, from 16.24 percent in the previous week on the back of higher prices of fruits, select vegetables and milk.

The government too expects inflation to ease, primarily because of fall in food prices on the back of good monsoon.

Earlier, Prime Minister Manmohan Singh had said that inflation would come down to around 6 percent by December this year.

In its maiden mid-quarterly monetary policy review last month, the central bank upped repo rate -- under which it lends short-term funds to banks -- by 25 basis points (bps) to 6 percent. It also hiked reverse repo, the short-term rate at which the central bank borrows, by 50 bps to 5 percent. The hike in the policy rates was the fifth this year.

Rangarajan further said that focus of RBI would be more on inflation than industrial production numbers. Industrial production in August nearly halved to 5.6 percent, prompting calls from India Inc against further rate hikes.

The decline in industrial production growth in August from 10.6 percent a year ago is mainly on account of decline in output of capital goods, a sector which reflects fresh investments in the economy.

Rangarajan, however, expects industrial production to grow at around 9 percent and Indian economy to register 8.5 percent growth rate in the current fiscal.

PTI

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