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New Delhi: India's central bank will take measures to curb the fastest price increase in 13 years, Finance Secretary D. Subbarao told reporters in New Delhi on Saturday.
"The first line of defense is monetary policy action," said Subbarao, the top bureaucrat in the finance ministry.
Reserve Bank of India Governor Yaga Venugopal Reddy met Prime Minister Manmohan Singh and Finance Minister Palaniappan Chidambaram today to discuss inflation. Subbarao said he had no knowledge about the measures planned by the central bank.
Rising prices have eroded the popularity of Singh's ruling Congress party, which has lost ground in nine of 11 state elections since January 2007. Singh faces elections in six more states this year and general elections by May 2009.
Wholesale price gains almost tripled this year to 11 per cent in the first week of this month, the most since 1995.
No details are known about any planned monetary measures, according to the Reserve Bank's Mumbai-based spokeswoman Alpana Killawala.
The trend in prices is "disturbing," Subbarao said.
"Although demand is not part of the problem, demand management has to be part of the solution," he said. "There are limits to how much we can manage supply-side dimensions. So, much of the response has to be from demand-side measures."
The Reserve Bank of India's expected move will be the latest in measures aimed at curbing inflation, including raising the benchmark interest rate and reducing liquidity, or the amount of cash in the banking system.
The central bank raised its benchmark repurchase rate to a six-year high of 8 pe cent on June 11, the first increase in 15 months. The bank has also increased the cash reserve ratio, the proportion of deposits banks must set aside as reserves, twice since April 17 to drain excess money in the financial system.
The government on June 4 scrapped taxes on imports of crude oil and cut duties on other fuel products, foregoing revenue worth $5.3 billion to cushion consumers from high fuel costs.
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