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Monday, January 11, 2010

Finmin signals RBI: no need to hike rates

The finance ministry backs administrative steps to tame inflation and wants hike in policy rates only if food inflation escalates into general inflation, a media report said on Monday quoting the finance secretary.

"We should be prepared to use generalised measures such as tightening liquidity through calibrated increase in cash reserve ratio and policy rates only in the event of the current food price inflation escalating into a general inflation," the Indian Express newspaper said quoting Finance Secretary Ashok Chawla.

The comments were in a proposal submitted to the Cabinet Committee on Prices, which is likely to meet this week, the report said. Chawla could not be reached to confirm the report.

"Considering that the high level of inflation is currently confined to food items, possibly there is nothing special which can be done on the demand side," Chawla said in the proposal, the paper reported.

"In order to augment supplies, all import duties may be suspended for the time being, maybe till the end of the current financial year," the paper quoted Chawla as saying.

The finance secretary identified rice, wheat, pulses, potatoes, onion, fruits, milk, mineral oils, sugar and oil cakes as the "commodities of concern," the report added.

The Reserve Bank of India's next monetary policy review is due on Jan. 29, although it can change policy at any time.

Food prices have soared after crops were hit by a weak monsoon and then flooding in parts of the country. Annual food price inflation was 18.22 percent as at Dec. 26, down from 19.83 percent in the previous week

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