Inflation to come down in next 2 months: Ahluwalia

RELATED NEWS RBI should carefully normalise policy: Ahluwalia

Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the Reserve Bank of India should carefully consider returning to normal monetary policy, a sign the government may be giving it the green light to raise interest rates next month.

He said inflation was a concern and needed to be brought down, but dismissed concerns of a prolonged period of double-digit inflation.

"Over the next two months, I expect to see inflation coming down."

Government officials have until recently stressed the importance of ensuring that rebounding growth is entrenched before the RBI begins increasing rates.

"Clearly inflation is become closer, much more into the worrying area. Secondly, we're much more confident the growth is picking up," Ahluwalia told reporters.

The central bank is widely expected to raise its key lending rate by 25 to 50 basis points on April 20 when it reviews monetary policy as it continues tightening its stance.

"The government seems to be making a case for a rate hike and they are preparing the ground for it," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd.

"The government wants growth, but it wants sustainable growth. But allowing inflation to get out of hand or allowing imbalances to get out of hand due to low policy rates could derail growth in the long-term," he said.

India's annual wholesale price inflation accelerated to 9.89%in February and the finance minister said it could top 10%in March.

"What is the balance between controlling inflation and protecting growth, is an issue which the people responsible for short-term monetary policy have to take a look at," Ahluwalia said.

India's economy is seen expanding at over 7.2%in the year to March 2010, with growth expanding to 8.5%the year after and to 9%in 2011/12.

At its quarterly policy review in January, the RBI raised the cash reserve ratio by a higher than expected 75 basis points but left policy rates on hold despite mounting inflation.

When asked if the strong growth and high inflation made a case for the central bank to return to a normal monetary policy, Ahluwalia said: "That is an issue I want the RBI to consider very carefully and I've no doubt they will make the right decision."

Ahluwalia declined to say what he thought the RBI would decide during its April review meeting.