The Reserve Bank on Tuesday cautioned that rising prices of crude oil and commodities as also volatility in financial markets may push up inflation again.
MUMBAI: The Reserve Bank on Tuesday cautioned that rising prices of crude oil and commodities as also volatility in financial markets may push up inflation again.
"Inflation outlook remains a matter of concern on account of energy and other commodity prices, increased capacity utilisation rates in developed and major emerging economies and the impact of rising wages on inflation in advanced industrial economies," RBI Governor Y V Reddy said, while releasing the quarterly review of the monetary policy.
Inflation based on wholesale prices declined to 4.41 per cent for the week ended July 14, much lower than the peak of 6.69 per cent in January, after the government and the central bank took a number of measures to check rising prices, especially of essential food items like wheat and pulses. The central bank aims at keeping inflation below 5 per cent.
RBI also warned that inflation pressures have raised concern in some of the emerging economies as well.
"Risks from global developments continue to persist, especially in the form of inflationary pressures, re-pricing of risks by financial markets and danger of downturn in some asset classes, with implications for EMEs (emerging market economies) in general," RBI said.
It also said international food and energy prices are likely to settle at higher levels than before amid indications that the sharp acceleration recorded in 2006 will not reverse.
International crude prices have crossed 75 dollars a barrel and are extremely volatile, representing a serious risk to inflation expectations.
In addition, RBI said, there are risks emanating from the developments in global financial markets.
While excessive leveraging by hedge funds and private equity has enhanced the vulnerability of global financial system, exchange rate fluctuations in major currencies have become amplified with large changes in the magnitude and direction of capital flows, RBI said.
Referring to global inflationary trends, RBI said in the US, consumer prices increased from 2.1 per cent in January 2007 to 2.7 per cent in June 2007.
In the euro area, inflation has remained at 1.9 per cent in March-June 2007. Inflation became zero in Japan in April-May 2007 from 0.9 per cent in August 2006 and turned negative at (-) 0.2 per cent in June 2007.
RBI said in the UK, consumer-price index based inflation declined to 2.4 per cent in June 2007. At the retail level, Retail Prices Index (RPI) inflation rose to 4.8 per cent in the UK in March 2007 - the highest since 1991 - but declined thereafter to 4.4 per cent in June 2007.
The central bank today raised cash reserve ratio - the statuary deposits that banks have to keep with it, by 0.5 per cent to 7 per cent, while keeping other key rates untouched.
Finance Minister P Chidambaram has called a meeting of bankers on Wednesday to review the credit situation and interest rates in the economy.
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}