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High inflation may moderate in 2013; to prompt RBI rate cut

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New Delhi:

Inflation may moderate in the New Year on easing of supply constraints after remaining stubbornly high for the whole of 2012 despite efforts by the government and the Reserve Bank to check rising prices of food items.

The wholesale price-based (WPI) inflation hovered over seven per cent through 2012, down from 10 per cent inflation seen in the previous year, reflecting the impact of tight money policy of the RBI.

Retail inflation, based on consumer price index (CPI), remained close to double digit at 9.90 per cent in November. The central bank had hiked key policy rates 13 times by 3.75 per cent between March 2010 to October 2011 to tame the rising inflation.

As inflation showed some signs of easing thereafter, the RBI lowered policy rates by 0.50 per cent in April 2012.

Despite pressure from the government and the industry, the RBI kept its policy rates unchanged evoking criticism from the Finance Ministry which wanted the central bank to take steps to promote growth.

Hours after the RBI unveiled its second quarter policy review on October 30, an apparently disappointed Finance Minister had said: "Growth is as much a challenge as inflation. If government has to walk alone to face the challenge of growth, then we will walk alone... Sometimes it is best to speak, sometimes it is best to remain silent. This is the time for silence."

A faltering economic growth was a bigger concern for the policymakers as they tried to boost investments and speed up the growth engine.

Story first published on: December 29, 2012 12:55 (IST)

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