With headline inflation staying stubbornly high despite the key policy rate hikes ten times since March 2010, the Reserve Bank on Friday conceded that the price spiral could be tamed by higher farm productivity and better technology and not through monetary measures alone.
“You all want that inflation should come down. Neither the Ministry of Finance nor the Reserve Bank has any magic wand to bring down inflation,” RBI Deputy Governor K. C. Chakrabarty said at a banking conclave organised by the Associated Chambers of Commerce and Industry of India here.
Explaining the genesis of the price spiral, which refuses to be tamed, Mr. Chakrabarty said the current inflation was owing to supply chain constraints and this could only be tackled by increase in productivity and use of modern technology. “…instead of saying that [the] RBI should bring down inflation, we must increase productivity and bring down the cost of services and that will only bring down inflation. Otherwise, it will not come down,” he said.
Headline inflation, as measured by the Wholesale Price Index (WPI), stood pegged at over 9 per cent in May with no signs of coming down despite the hawkish monetary stance adopted by the apex bank and the other administrative steps taken by the government.
In fact, seeing the inefficacy of its monetary measures alone in an uncertain environment of high global commodity and crude oil prices, the RBI had projected during its monetary policy review on May 3 that inflation would hover at around 9 per cent in the first half of the current fiscal and later moderate gradually to around 6 per cent (with an upward bias) by March, 2012, provided the monsoon rains are normal.