It’s not the last of interest rate hikes, says FM

I don’t think it is end of the tunnel. It is not like that. It does not happen (that way)”, he told reporters, when asked whether RBI is nearing the end of the interest rate increase cycle. When asked whether he was surprised by the 50 basis points increase in key interest rates by the RBI, Mukherjee said, “I cannot say it surprised me. It is substantial no doubt, but given the situation it was necessary”. Admitting that inflation at 9.4 per cent in June was “reasonably high and unacceptable”, Mukherjee said it was a global phenomenon and the whole world was reeling under the impact of rising prices of fuel and other commodities. The government and the central bank are taking steps to check price rise, he said, adding “I am optimistic that measures taken by the RBI by adjusting the crucial rate will have impact and inflation will come down”. The inflation, Mukherjee said, might not come down to below 6-7 per cent by the end current financial year. “We are fighting against inflation...increase in repo and reverse repo by RBI conveys a strong signal... (but) we shall have to keep in mind that year-end inflation may not be less than 6-7 per cent,” he said. In an economy, Mukherjee further said, “you cannot have a carpet under which you can keep all these things and at the same time things will remain stable”. He said crude oil prices went up from US$89 per barrel when the budget calculations were made to US$107-110 currently. He also recalled that India had lived with very high inflation, at 24 per cent in 1974. It was 18 per cent in 1990. The minister said he would take up the issue of volatility in commodity and crude prices at the international fora including G-20. Meanwhile, he said there has been 26 per cent growth in direct tax collection till mid-June while indirect tax collection witnessed a jump of 30 per cent during the period. However, during April-May 2011, the government’s revenue deficit and fiscal deficit turned out to be higher than the levels during the corresponding period of the previous year, reflecting lower revenue receipts and higher expenditure, the RBI had said. Up to July 18, 2011, the government completed 34 per cent of its budgeted net market borrowing programme, as compared with 37 per cent in the corresponding period of last year, it had said. On farm sector he said, “up to now monsoon forecast is encouraging though there are some pockets of deficiencies.. I do hope if agriculture maintains growth momentum ,it will help us in a substantial way”. Besides, he said, there are indications of encouraging hiring activities in corporate sector.

Deccan Herald