The RBI had also been contributing regularly to Long-Term Operations (LTO) Funds to refinance industrial or agricultural development, generally on concessional terms. Combined with automatic monetisation of budget deficits of the Central Government, such contributions also caused significant increases in primary or reserve money.
It was partly due to base effects stemming from falling energy prices in early 2001 and to higher indirect taxes in some euro area countries early this year. The increase also reflected a considerable rise in unprocessed food prices due to adverse weather conditions in some parts of Europe and a slight increase in energy prices at the start of 2002.