RBI sees Fed's easy money policy stoking inflation in India

US Federal Reserve's (Fed) decision to keep record-low interest rates coupled with the possibility of more steps to stimulate the US economy could boost commodity prices and fan inflation in India, the Reserve Bank of India (RBI) said today.

"Given the fiscal limitations and growing signs of weakness in the US, the Fed has already indicated that it will pursue its near-zero rate policy at least till mid-2013," the RBI said in its annual report in Mumbai today.

"It has also hinted at another dose of quantitative easing by March 2012," it added.

The slow global recovery has not seriously impacted commodity prices, as the decline has not been very significant. While a further weakening of global commodity prices, especially minerals and oil, will have a salutary effect on the Indian economy, the Fed measure would only help to negate that benefit to India, RBI pointed out. This policy stance may keep the commodity prices elevated."

RBI expects inflation in India to remain high and moderate only towards the latter part of the year, at around 7 per cent,

The wholesale-price inflation rate in India has stayed over 9 per cent since the start of December and touched 9.80 per cent in the second week of August, as per official estimates.

While persistent inflation over the last two years has brought to the fore the limitation in arresting inflation in absence of adequate supply response, monetary policy still has an important role to play in curbing the second round effects of supply-led inflation, RBI noted.