RBI says it has no magic wand to bring down inflation soon

“You all want that inflation should come down. Neither the ministry of finance nor the Reserve Bank of India has any magic wand to bring down inflation,” RBI Deputy Governor K C Chakrabarty said at an Assocham meet here.

Inflation, as measured by the Wholesale Price Index (WPI), was over 9 per cent in May.
Despite RBI’s monetary policy tightening regime and steps of the government, inflation continues to remain high.

The central bank has projected inflation to be at around 6 per cent by March 2012.

The Deputy Governor said the current inflation is because of constraints in the supply chain and only increase in agricultural productivity and use of modern technology could check the rate of price rise.

“...instead of saying that 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.

RBI has been increasing key policy rates since March 2010 and the latest was yesterday’s 25 basis points hike in short-term lending and borrowing rates.  Inflationary pressures persist from both higher global commodity prices and domestic structural demand-supply imbalances in several commodities.