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RBI governor warns of 'stubborn' inflation

AFP  Mumbai, March 14, 2013
First Published: 11:40 IST(14/3/2013) | Last Updated: 11:45 IST(14/3/2013)

Reserve Bank of India (RBI) governor has said "stubborn" inflation remains a major obstacle to growth in India, dimming expectations of an interest rate cut when policymakers meet next week.


RBI slashed the main interest rate in January for the first time in nine months after a fall in inflation and calls from the government and business leaders for lower borrowing costs.

RBI governor Duvvuri Subbarao reiterated his concern late Wednesday about persistently high inflation, despite the wholesale price index falling to a more than three-year low of 6.62% in January.

"It's not possible to bring inflation down without sacrificing some growth. But... you have to realise that that growth sacrifice is only in the short term," he said in a speech at the London School of Economics.

"In the medium term, low inflation - price stability - is very important for sustained growth," he said in defence of criticism that the RBI is damaging growth by not cutting interest rates quickly enough.

He described inflation as "still high" and "stubborn".

In January, the bank cut the benchmark repo rate, at which the RBI lends to commercial banks, by 25 basis points to 7.75% - the first cut since April last year.

Indian business leaders and the government have for months been calling for lower lending rates to help the once-booming economy, forecast to see a 5% growth rate in the year to March 2013, the weakest in a decade.

Yes Bank chief economist Shubhada Rao this week forecast a quarter-point interest rate cut at Tuesday's central bank meeting in Mumbai but added the decision would be a "very close call".

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