Economy still under inflationary pressure: FM

NEW DELHI: Finance Minister P Chidambaram on Thursday said economy is still under inflationary pressure, a view expressed by the RBI Governor Y V Reddy.

Reddy feels that the measures being taken by the RBI would help ease pressures on prices.

"I met RBI Governor Y V Reddy. Governor said there is still pressure on prices ... I am in broad agreement with him," Chidambaram told reporters after the Cabinet meeting here.

"So, if these monetary measures take effect, Governor expects some moderation (in inflation) over a period of time...," Chidambaram said.

He said the call money rates are indicative of a squeeze in money supply. "There are some signs of tightening of liquidity as you can see from call money rates," the Finance Minister said.

The overnight rates (call money rates) at which banks lend to each other have escalated to 7-9.1 per cent.

After briefing members of Parliamentary Standing Committee on Finance earlier this week, Reddy had met Chidambaram.

RBI had last month raised short-term lending (repo) rates by 0.75 per cent to 8.5 per cent and made banks to park more money with it through hike in cash reserve ratio by 0.50 per cent to 8.75 per cent.

On the back of high prices of crude oil and food items, inflation has reached 11.89 per cent giving handle to the opposition parties to attack the UPA Government in an election year.

The RBI is expected to take further tightening measures, including the interest rate revision, to cool the demand and check the price rise when it reviews its credit policy on July 29.

Thanks: TOI