RBI may squeeze money supply to tame inflation

New Delhi, Dec. 14: Rising inflation may prompt the Reserve Bank to squeeze money supply to tame price rise, said a former adviser to the Prime Minister.

The wholesale price-based inflation jumped to nearly five per cent from 1.34 per cent in October, according to the monthly inflation data released on Tuesday.
Attributing rising prices to supply side constraints, Mr Suresh Tendulkar, former chairman of the Prime Minister’s Economic Advisory Council, said the RBI could take steps to withdraw liquidity to tame rising prices. The apex bank is slated to announce review of its annual credit policy next month.

Food inflation, according the weekly data announced earlier, had shot up by 19.04 per cent during November recording the sharpest rise in the decade.

The RBI in its monetary policy review in October had revised the inflation forecast to 6.5 per cent by March-end from 5 per cent earlier.

“(The) RBI may withdraw the liquidity in terms of SLR (statutory liquidity ratio) movement but I don’t see any rate changes to be done not till the next quarterly review (in January),” he said.

Yes Bank’s chief economist, Ms Suhubhda Rao, said, “A sharper rise in manufacturing indicates that the pricing power is gradually returning as ma-nufacturing products have seen a price rise.”