Rangarajan differs with RBI on inflation projection

Disagreeing with Reserve Bank's projection on the price situation, former RBI Governor and PM's Economic Advisory Council chairman C Rangarajan said WPI and CPI may not be as high as being projected by the central bank.

"Well I think the inflation rate may not be as high as (RBI) report seems to suggest. I would really think as far as WPI (Wholesale Price Index) is concerned, it will be around 5.5 to 6 per cent. I don't think that it will exceed 6 per cent...I expect the WPI as well as consumer price index (CPI) to remain at slightly lower level than indicated," Rangarajan said.

Reserve Bank of India in its second quarter review of monetary policy, has said that "overall WPI inflation is expected to remain higher than current levels through most of the remaining part of the year."

Besides the central bank in its review unveiled said that retail inflation measured by the (CPI)...is likely to remain around or even above 9 per cent in the months ahead.

According to Rangarajan, the whole (monetary) policy has focused on price stability and that is the right approach.

"I think…as the Central Bank of the country, price stability is its dominate objective. Therefore the way to interpret the policy would be that it will depend very much on the behaviour of the inflation," he said.

About chances of further rate hikes RBI, he said, "..if the situation (inflation) picks up from the current level then perhaps RBI is consistent with what it said in the policy review, it has to raise it (interest rate). But I will not at this particular point, make any guess. We would like to watch inflation behaviour all the next 6 weeks."

Rangarajan said he thinks there are prospects of inflation moderating in the next month or so because of better monsoon and the (other) impact on the food inflation.

About the lowering economic growth projection for this fiscal from 5.5 per cent to 5 per cent by RBI, he said, "We had estimated the growth rate to be at 5.3 per cent for the year. I don't see any reason to alter that (projection) at present point."

"Various reasons in the policy suggest that growth will pick up in second half of this fiscal. Some people think that agriculture growth will be in excess of 5 per cent. Taking all these factors into account, it can be higher than 5 per cent," he added.