India 'committed' to tackling spiralling inflation

Reserve Bank of India (RBI) Governor Raghuram Rajan smiling after arriving for a quarterly interest rate review briefing at the RBI headquarters in Mumbai in this October 29, 2013 file photo. India is ready to deal with any external shock arising fro
Reserve Bank of India (RBI) Governor Raghuram Rajan smiling after arriving for a quarterly interest rate review briefing at the RBI headquarters in Mumbai in this October 29, 2013 file photo. India is ready to deal with any external shock arising from the Iraq crisis, its central bank chief said on June 17, 2014 even as a spike in oil prices heightens the inflation, growth and budget risks facing new Prime Minister Narendra Modi. -- FILE PHOTO: REUTERS

MUMBAI (AFP) - India's central bank chief said on Tuesday that tackling spiralling inflation would be a priority in the coming months, amid fears of further price rises hitting tens of millions of the country's poor.

Reserve Bank of India (RBI) governor Raghuram Rajan's comments come a day after the government said wholesale inflation had hit a five-month high in May, driven by higher food and fuel prices.

Forecasts of a weak annual monsoon that could cut crop production across the country have further fuelled inflation fears.

"I expect the next few quarters will be primarily engaged in combating inflation," Mr Rajan told reporters on the sidelines of an industry event in Mumbai.

The Wholesale Price Index, the most closely watched cost-of-living monitor, rose to 6.01 per cent in May, a figure above the RBI's 5 per cent "comfort" level.

Finance Minister Arun Jaitley said India's new right-wing government was committed to tackling bottlenecks that cause inflation to rise.

"The government is seized of the matter and is committed to ease supply side constraints," Mr Jaitley said on his Facebook page late on Monday.

He added that India's state governments should "take effective steps" to discourage hoarding of stocks on speculation of a supply shortage sparked by a weak monsoon.

Prime Minister Narendra Modi's government came to power last month on a pledge to contain inflation, which has been stuck at high levels for several years, causing huge suffering for legions of poor Indians.

Mr Jaitley will unveil his first budget next month after pledging during the election campaign to revive the economy, which grew at just 4.7 per cent last year - the lowest in nearly a decade.

India is one of the world's top producers of rice, wheat and sugar and relies heavily on the southwest monsoon which sweeps the subcontinent from June to September to water its crops.

The rupee sank to 60 against the dollar on Tuesday - the lowest level since early May, as global oil prices rally over the turmoil in Iraq. Higher energy costs could drive up power prices in India, which imports most of its oil.

"The government is watching the movement of rupee closely. The slight instability of (the) rupee is essentially because of Iraq oil shocks and global fear of oil price rises," Mr Jaitley said.

Mr Rajan said the bank was also watching developments in Iraq, but stressed India has "sufficient" foreign exchange reserves after initiatives in recent months to boost reserves.

"We are in much better position now than last year," Mr Rajan said. "We have enough reserves."