RBI hints at money supply curbs

Concerned over the spiralling food prices, the Reserve Bank of India has indicated a tightening of money supply to contain the rising inflation pressures.

“An effective assessment of the inflation process, and using monetary policy actions at the right time would be critical to enhance the effectiveness of the inflation management policy,” the RBI deputy governor, Ms Shyamala Gopinath, said while addressing the Bengaluru Chamber of Industry and Commerce.

She further said that there is a risk of high inflation in the essential commodities affecting inflation expectations over time and give rise to generalised inflation.

“Given the dominance of food price inflation in shaping the overall course of the inflation path, the policy challenge is to address the supply constraints,” Ms Gopinath added.

The Reserve Bank is slated to come out with the third quarter review of its monetary policy on January 29 amid intense speculations that it may signal an interest hike to tighten money supply to contain the rising inflation.

The food inflation was nearly 19 per cent last week while, the overall wholesale price inflation rose to 4.78 per cent in November compared to 1.34 per cent in October. The deputy governor further said that the near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on the containment of inflation.

Early this month, the Prime Minister’s Economic Advisory Council chairman, Dr C. Rangarajan,

had said that food prices must be controlled by monetary action as it is tended to lead to manufacturing inflation.

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