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At 7.25%, inflation still above comfort level: RBI Governor

Last updated on: July 17, 2012 13:52 IST

At 7.25%, inflation still above comfort level: RBI Governor

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BS Reporter in Mumbai

Headline as well as consumer price inflation was way above the Reserve Bank of India's comfort level, Governor D Subbarao said on Monday.

His comments poured cold water on hopes that the central bank may have a rethink on rates after the wholesale price index, the main inflation gauge, rose a lower-than-expected annual 7.25 per cent in June, its slowest rise since January, helped by moderation in fuel prices.

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Photographs: Reuters

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At 7.25%, inflation still above comfort level: RBI Governor

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After the inflation numbers were released on Monday morning, bond yields softened on hopes of policy easing.

Yields on the 10-year benchmark government bond on Monday closed at 8.05 per cent as compared to the close of 8.1 per cent on Friday.

Yields fell to an intra-day low of eight per cent post the announcement of the inflation data.

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Photographs: Reuters
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At 7.25%, inflation still above comfort level: RBI Governor

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Concerns that inflation may bounce back in the following month limited a further fall in yields.

Subbarao indicated the threshold level of inflation was around five per cent.

The RBI will announce its next policy statement on July 31.

Though Subbarao said inflation was above the central bank's comfort zone, he offered a caveat.

"What I do want to say. . . is that I am not implying anything by way of what decision which we might take at the policy review at the end of July. . . I am only saying inflation today is above the threshold," he said in his speech while releasing a book, Of Economics, Policy and Development -- An Intellectual Journey By IG Patel, by former RBI governor I G Patel.

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Photographs: Reuters

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At 7.25%, inflation still above comfort level: RBI Governor

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The book has been edited by Subbarao's predecessor at the RBI, Y V Reddy, and Deena Khatkhate.

Subbarao defended the RBI's emphasis on inflation as he said low and stable inflation was an essential precondition for securing medium-term growth.

"Admittedly, monetary tightening has resulted in some sacrifice of growth in the short term.

"That is an inevitable price to pay for price stability.

"But the sacrifice is only in the short term. In the medium term, there is no trade-off between growth and inflation," he said.

 



Photographs: Reuters

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