RBI will take steps to tame galloping inflation

New Delhi: India's central bank is expected to take some more action to counter rising inflation, and the government will also take further steps to calm prices, a statement by the finance ministry said on Saturday.

India's headline annual inflation rate hit a 13-year high of 11.05 per cent in early June, stoked by a rise of about 10 per cent in government-set fuel prices at the start of the month.

The inflation data, released on Friday, was a shock to the financial markets and many economists say they now expect the Reserve Bank of India (RBI) to tighten monetary policy again in coming months after a surprise rate hike on June 11.

The statement said Finance Minister P Chidambaram had called on Prime Minister Manmohan Singh on Friday and had a discussion with him. Chidambaram then invited RBI Governor Yaga Venugopal Reddy to meet him yesterday to review the situation.

"We expect the central bank to take some more action," Finance Secretary D. Subbarao said, while reading out the statement. "It is for the RBI to take a decision and to take a decision on when it is appropriate."

Demand management

He said demand management had to be part of the solution. "In this regard the first line of defence is monetary policy action."

Subbarao said second-round effects were now in play and inflation would remain high for some months. The most important driver of inflation at the moment was crude oil.

The central bank raised its key lending rate unexpectedly on June 11, taking the repo rate up 25 basis points to a five-and-a-half year high of eight per cent.