Monetary actions warranted to curb inflation: Rangarajan

Last Updated: Wednesday, January 13, 2010 - 00:00

Mumbai: Rising inflationary pressures, primarily from food items, warrants monetary policy actions besides fiscal steps, Prime Minister`s Economic Advisory Council Chairman, C Rangarajan on Tuesday said.

"Current inflation primarily is food price rise, which is a supply-side phenomenon...at the same time, some monetary actions would also help," Rangarajan told reportes on the sidelines of Bancon conference here.

Reserve Bank is widely expected to hike its cash reserve ratio, percentage of amount banks have to park with the RBI, to suck out excess liquidity at its January policy review.
However, the pick up in Index of Industrial Production (IIP), which grew by 11.7 per cent in November, is a positive sign and is expected to be maintained moving ahead, Rangarajan said.

On the back of encouraging signs of recovery, India`s economy is expected to achieve a 7-7.5 per cent growth in the current fiscal, Rangarajan said.

"Signs of economic growth is strong and the growth process is robust...we should expect a growth of 7-7.5 per cent in current year," Rangarajan said.
Rangarajan said the Reserve Bank could hike the cash reserve ratio in its quarterly review, which will help curb the inflationary pressures.

RBI`s monetary policy actions might not pose any direct impact on the interest rates." This could only have an indirect impact," Rangarajan said.

Warning that the current high food price inflation, if persists, will spill over to the wider economy, Rangarajan said this should tackled by appropriate actions.

Stressing the importance of consolidation among Indian banks in the face of increasing global competition, he said banks need to explore ways for inorganic expansion as the options for organic growth are limited.

However, any process of consolidation should come out of a `felt need` for merger rather than as an imposition from outside, Rangarajn said.

On the capital requirement for Indian banks, he said the Government will have to bring in more capital for banks to prepare them face the challenges in a high-growth mode.

"When growth is rapid...there is a need for injection of equity...in this situation, the Government will have to additional capital," Rangarajan said.

On the credit flow to the industry, Rangarjan said, banks need to equip themselves to assess the credit needs of the merging segments in the economy.

Also, there was a need to give importance to systemically important institutions and should attach stricter and enhanced prudential norms for these institutions, he said.

PTI



First Published: Wednesday, January 13, 2010 - 00:00

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