Mumbai, Sep 14 (PTI): The Reserve Bank of India’s top priority is to keep inflation under control, deputy governor Keshab Chandra Chakrabarty said on Friday, just ahead of Monday’s mid-quarter review of monetary policy.
“Controlling inflation is the top most priority of the central bank,” Chakrabarty told the students of a city college here.
He is the senior-most RBI deputy governor, and his comment assumes importance as government data released on Friday shows that inflation rose to 7.55 per cent in August, after falling a bit in July.
Inflation, as measured by the Wholesale Price Index (WPI), was 6.87 per cent in July. In August last year, however, it was 9.78 per cent.
The latest increase was driven by higher prices of vegetables such as potatoes, as also wheat and pulses.
The spike in the price index was also driven by a rise in the prices of manufactured items, further whittling down the efforts of the monetary authority to batten down inflation.
Admitting that the nearly two-year-old rate hikes have had its impact on growth driven by slowing investments, the deputy governor said, “We agree that investment has slowed down due to higher interest rate.”
On the third round of quantitative easing (QE3) announced by the US Fed yesterday, he said it will help the American economy, but it will spike commodity prices.
“What the US has done, will help the American economy. But it will have impact on the commodity prices. However, our problem is more internal,” he said.
On Thursday, US Federal Reserve chairman Ben Bernanke said the central bank would buy $40 billion worth government bonds every month to help boost the economy till 2015. He also left the interest rates unchanged at 0.25 per cent till then. The move has increased commodity prices across the globe, besides triggering a rally in stock markets.
Taking a dig at the banks for reducing interest rates on their deposits, Chakrabarty said savers must be given higher rates of interest in comparison to inflation.
Overall, food inflation declined to 9.14 per cent in August, from 10.06 per cent in July. Food articles have a 14.3 per cent share in the WPI basket.
In the food articles category, pulses turned expensive by 34.39 per cent in August, wheat by 12.85 per cent and cereals by 10.71 per cent on an annual basis.
Besides, potatoes turned costlier by 68.86 per cent and rice by 10.29 per cent.
Inflation in eggs, meat, fish prices was 13.77 per cent, while in milk and fruits it was was 6.68 per cent and 1.14 per cent respectively.
Besides, inflation for June was revised upwards to 7.58 per cent, from 7.25 per cent as per provisional estimates.