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Even as C Rangarajan, chairman of Prime Minister's Economic Advisory Council, said that a tightening of the monetary policy by the Reserve Bank of India (RBI) has become imperative to check the double digit inflation, KC Chakrabarty, deputy governor has indicated that the central bank will resort to to more measures if situation demands."The current inflation is not a surprise and still within RBI estimates.If things change fast, there will be more measures depending upon the environment," Chakrabarty said, adding that inflation is a cause of concern for the central bank and they are moving towards a tightening policy. "The message is already there that we are moving from the accommodative policy. I cannot say when this will happen" Chakrabarty said.Inflation rates have touched an uncomfortable rate in the past three-four months. It is not just the food prices which are fueling inflation. Inflation in the manufacturing sector has shot up to 6%, making a rate hike imperative to curb demand side pressures, said Rangarajan while speaking at the sidelines of a seminar organised by the Skotch Consultancy Services in Mumbai on Thursday .Headline inflation rate based on the wholesale price index rose to 10.16% in May from 9.59% a month earlier mainly on account of a sharp rise in prices of primary articles, while food inflation has dropped marginally to 16.12% for the week ended June 5. RBI had started its exit policy in October 2009. It is widely expected that RBI would furher hike the key interest rates, short-term lending (repo) and borrowing rates (reverse repo) by 0.25% at its quarterly policy review on July 27. Chakrabarty also said the government's announcement on Wednesday on the buy-back of Rs 20,000 crore worth bonds was taken to ease the liquidity shortage in the system, which has happened due to the cash outflow of Rs 1.40 lakh crore on account of payments for 3G, broadband wireless licenses and advance payments. The central bank has raised its key interest rates twice since mid-March by a quarter percentage point each time.In May it allowed banks to maintain a lower statutory liquidity ratio for banks, by 0.50%, for a short period till July 2, 2010. The RBI now conducts two liquidity adjustment facilities (LAF) operations every day, allowing banks access funds from it.
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