RBI indicates tighter monetary policy to contain inflation

"Clearly there is a new risk to oil prices emerging from the current situation (in Egypt) and we have to watch that," RBI Deputy Governor Subir Gokarn told reporters here.

In the wake of these risks, he said the RBI will stick to anti-inflationary measures, which in turn could result in high interest rate for borrowers of all types of loans.

When asked if the RBI may go for another round of hike in the short term borrowing and lending rates, Gokaran said "Our monetary policy stance is anti-inflationary".

His reaction comes at a time when the headline inflation rose to 8.43 per cent according to December figures and food inflation went above 17 per cent for the week ended January 22.

The situation has further detoriated due to the political unrest in Egypt, which has reulted in global crude prices spiralling to a over two year high.

The oil prices had crossed USD 102 per barrel last week and experts have expressed concern over further jump as unrest spreads to other countries in the Middle East.

"We had projected in our quarterly review about the upside risk to inflation coming from commodity prices, including energy prices. There is obviously a risk that the situation will translate into higer commodity prices," he added.

Gokarn however added that the Reserve Bank would for the time being stick to its estimate of 7 per cent inflation by March end as it had already taken into account the actual price rise till end of January in its monetary policy review last month.

"What is happening now may be persistent, may be transitory (current high prices)...so it is still in a sense a worry. For the moment we will stay with 7 per cent inflation by end of March," he added.

Gokarn further said that ongoing food inflation is driven by commodities that are not monsoon senstives. "That suggest that there is structural element (to inflation)," he added.

The inflation data for January 22 revealed that wheat and cereal prices have moderated over the previous year but vegetables prices soared during the period under review.

Asked about the central bank's response to the GDP estimate released earlier in the day, Gokarn said, "Our outlook for 2010-11 was 8.5 per cent with an upward bias which reflects the base. It is consistent with the current projections (of 8.6 per cent)."