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Thursday, May 20, 2010

Inflation a big worry, demand side pressures building up: Subbarao

Reserve Bank of India (RBI) Governor D Subbarao today said inflation was a big worry as demand side pressures were building up in the economy.

"Generally, there is a resurgence of positive sentiment. The big worry, though, is inflation,"Subbarao said while addressing a bankers' meet here.

"Demand pressures are building up, as supply side pressures have yielded to demand side pressures," he said. "Supply side pressures are abating, but slowly," he added.

Subbarao also said the final March inflation rate could be revised to double digits from the provisional estimate of 9.9 per cent.

Last week, the government had revised the final inflation rate for February to 10.06 per cent from 9.89 per cent. Subbarao said one of the reasons demand pressures were building up was the government partially exiting the fiscal stimulus. The Budget for 2010-11 had raised the general excise duty by 2 percentage points to 10 per cent.

He said there was some upward pressure on wages and asset prices were also building up rapidly. One needs to watch out for structural inflation, he warned.

"If there is structural inflation, it may take some time to come down," he said, adding RBI did not have a firm view on whether there was structural inflation in the economy.

Subbarao said the short-term aim of the central bank was to restore the economy to the trend growth without compromising price stability.

The medium-term aim was to raise the trend growth without compromising financial stability, he said. On the outlook for the Indian economy, he said growth was consolidating and getting broad-based.

Meanwhile, RBI Deputy Governor Subir Gokarn said the regulator was aware that its policy rate was out of line with inflation.

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