RBI can raise interest rates again: PMEAC member

The Prime Minister's Economic Advisory Council member G Govinda Rao on Thursday said the Reserve Bank can raise the key rates ahead of its April 20 annual monetary policy to tame the high headline inflation.

"I am not saying it will happen. I am saying it can happen," he told reporters when asked whether the central bank would raise key rates ahead of the monetary policy to tame inflation, which is expected to cross double-digit mark.

"It can happen both in terms of raising of CRR (cash reserve ratio, which is the amount of money that banks have to park with the central bank without any interest) as well as the raising of the benchmark (policy) rates," Rao said on the sidelines of a function here.

Rao said hike in the policy rates is "something which is likely to happen. I think we should be prepared for it."  The RBI, without waiting for the policy announcement, had already raised the repo and reverse (short-term lending and borrowing rates) rates by 25 basis points to 5 per cent and 3.5 per cent respectively in mid-March, to check food inflation from spreading to manufactured goods.

The whole-sale price-based inflation soared to 9.89 per cent in February and is expected to cross the double-digit mark in March, the data for which is likely to be announced next week.

Also, food inflation, according to the data released earlier in the day, touched the month's high of 17.70 per cent for the week ended March 27.

Rao, however, expressed the optimism that inflation is likely to come down by the end of May, as by then the base effect would begin to vanish. He said people should not start pressing 'alarm bells' in case the prices of a couple of items in the food basked show a spike but added a sharp increase in prices is always a worry because it adversely affects the poor.