Inflation to remain sticky: RBI

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Inflation to remain sticky: RBI
The Reserve Bank of India has said that inflation is likely to remain sticky at around 7 per cent with upside risks emanating from deficient monsoon, large upward revision in Minimum Support Prices (MSP) on the back of cost escalation and exchange rate depreciation during Q1 of 2012-13.

In its annual report the country's central bank has said that the latest assessment suggests that there could be considerable upside pressure on price of pulses.

"The prevailing drought in parts of US, Eurasia and Australia may add to price pressures on food in global markets. Other upside risks arise from suppressed inflation in energy prices of diesel, coal and electricity," The RBI has said.
"While inflation risks in 2012-13 are on the upside, there is a need to distinguish between temporary and permanent supply shocks. If left unchecked, persistent inflation could unhinge inflation expectations. Furthermore, demand pressures emanating from high rural wages and growing corporate staff costs would need to be factored in. A close vigil on inflation would be necessary during 2012-13 to prevent reemergence of inflationary pressures," it has noted.
The annual report also suggested that there was a need to address twin deficits to contain risk to macro-financial stability.

"The emergence of twin deficits during 2011-12 was a major cause of macro-economic weakness. Current assessment suggests that they are likely to stay wide in 2012-13 in absence of sufficient policy response and no improvement in business cycle conditions.
With growth remaining slow, budgetary targets are at risk. Shortfall in indirect tax revenue, decline in corporate earnings, difficulties with disinvestment and expenditure overshooting due to under-provision of petroleum subsidies are likely to put fiscal position under pressure, the report revealed.

The annual report of RBI covered the assessment of the macroeconomic performance during 2011-12 and the prospects for 2012-13.

Read more about: rbi, inflation
Story first published: Friday, August 24, 2012, 10:21 [IST]
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