Inflation to fall to 7% by March: Prime Minister's Economic Advisory panel Chairman Rangarajan

BANGALORE: Inflation is expected to come down to 7 per cent or even lower by March 2012, Prime Minister's Economic Advisory panel Chairman C Rangarajan said here today.

"Primarily food inflation has been on a declining trend, which has fallen from 11.81 per cent in October to 4.35 per cent in early December 2011," he said.

The falling food inflation for next two months will result in the decline in the headline inflation (in wholesale price index), Rangarajan said.

Rangarajan said that high growth does not warrant a higher level of inflation and therefore the country must use policy instruments - interventions in foodgrains market, monetary and fiscal policies - to bring down the current inflation and re-anchor inflationary expectations to the five per cent comfort zone.

On depreciation of rupee against dollar, Rangarajan said the pressure on rupee is a result of a mismatch between Current Account Deficit and capital inflows.

"A number of policymaking decisions including increasing the investment limit of Foreign Institutional Investors (FIIs) have been taken to encourage capital inflows in the country," he added.

Replying to a query, Rangarajan said decontrol of diesel is a natural corollary to decontrol of petrol. "You cannot decontrol one petroleum product and not the other," he said. But the timing is important and it has to be done when inflation shows definite signs of decline."