'RBI has headroom for rate hike'

The Planning Commission said on Friday that the Reserve Bank of India has some headroom for rate hike of around 50 basis points.

"There is some headroom left for rate hike by RBI of about 50 basis points, if we consider the interest rates of pre-crisis period," principal advisor to the Planning Commission Pronab Sen said on the sidelines of Intaglio, 2011 organised by students of Indian Institute of Management, Calcutta.

There has been six rate hikes in calendar year 2010, but even then the rates are yet to reach to the levels before the global meltdown, he said.

Asked whether the interest rate was high during the boom period prior to the meltdown, Sen said the economy grew by 9 per cent at the then prevailing interest rates.

Speaking on inflationary pressure, primarily on food articles, Sen said there are no short-term measures to the problem as there are not enough tools with the government to tackle them.

"Monetary policy measures can be used to tame inflation but at the very high price of sacrificing growth," he said.

Sen said the Planning Commission is debating on reaching enough credit to 18 million micro enterprises to boost employment as the current policy is not helping them.

He also claimed that leakages from public distribution system have increased with the introduction of below poverty line category.