PM council favours RBI’s exit policy
New Delhi, July 23: Prime Minister Economic Advisory Council (PMEAC) has recommended tightening of monetary policy to control double digit inflation, days before RBI’s monetary policy review on Tuesday.
The council in its economic outlook for 2010-11 predicted inflation to remain high at 7-8 per cent by the end of December and then fall to 6.5 per cent by March. The inflation was in double digits at 10.55 percent in June.
“In the backdrop of inflation rates that are more than twice the comfort-zone, it is important that monetary policy completes the process of exit and moves towards a bias on tightening with respect to normal monetary conditions,” said the economic outlook.
It said this is essential to preserve price stability and create conducive conditions for sustainable growth in the medium term.
The outlook said that inflation has remained a major source of concern in the economy for more than a year. “There must be a bias towards tightening because the demand situation also needs some control,” said PMEAC chairman, Dr C. Rangarajan. He expects RBI to carry out a series of small policy tightening steps.
Mr Rangarajan said that he doesn’t believe that the economy was overheating as the double digit inflation was due to high food prices. RBI has increased rates three times since mid-March by a quarter-point each. He said that in order to bring down food inflation government should release food grains through PDS to dampen these prices and continuation of import of wheat, rice and sugar on zero customs duty.
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