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Sunday, November 27, 2011

High food prices may warrant more RBI action: Subbarao


Further monetary action from the Reserve Bank of India (RBI) cannot be ruled out as it tries to anchor inflation expectations amid persistently high food prices, central bank Governor D. Subbarao said on Tuesday. "The direct role of monetary policy in combating food price pressures is limited, but in the face of sustained high food inflation, monetary action may still be warranted to anchor inflation expectations," Subbarao said at the 25th Annual Conference of the Indian Society of Agricultural Marketing at Hyderabad. The RBI has raised rates 13 times since March 2010 to tame spiraling and sticky inflation largely driven by high food prices. But in its last policy meeting, the RBI hinted that it could hold rates steady in December policy review and maintain status quo if inflation remains within its projected trajectory. A lasting solution to food price pressures lies in a supply response that raises agricultural production and productivity, improves supply chain management and sets the right incentive framework for both producers and consumers, the RBI Governor said. The outlook on food inflation in the short to medium term will be determined by the speed and quality of such a supply response by the Government, he added. Government data released last week showed that India's food inflation rose 10.63% and the fuel inflation surged 15.49% in the year through Nov. 5. On the rupee hitting a new record low today, Subbarao said that the RBI's rupee policy remains the same. "Our (RBI's) policy remains the same, which is to manage volatility in exchange rate and to ensure that exchange rate volatility does not impair macro-economic stability," he said. Subbarao added that exchange rate movement, especially in the last three to four days was driven by global dynamics and the RBI expects reverse adjustment to take place when the European situation resolves itself.