Reserve Bank governor D Subbarao on Thursday said inflation can be brought down to 4-4.5 % in the medium term while admitting that the economic expansion is being sacrificed to ensure sustainable growth in the long run.
"I believe that there is no new normal to inflation. We can bring it down to 5 %, and then further down to 4-4.5 % in the medium term," Subbarao said.
Taking on the criticism that the monetary authority is ignoring slowdown warnings across sectors in its fight against inflation, he said, "Yes. We are sacrificing growth... in the short-term. But it is only to ensure sustainable growth in the medium term."
The governor was speaking at an event to launch a book, 'Growth With Financial Stability: Central Banking in an Emerging Market' by former RBI deputy governor Rakesh Mohan.
"Our experience shows that when inflation is low, may be you can raise it somewhat and get high growth, but up to a threshold level. Beyond that threshold level, if you try to raise growth, by raising inflation, you actually end up with higher inflation and lower growth," he noted.
Pointing out limitations of the monetary measures to tame inflation, he said, "With one instrument,that is interest rate, you cannot at the same time restrain consumption and support investment. So, in the short-term you may have to sacrifice growth to generate an environment of rapid growth and steady inflation in the medium term."
As inflation remained elevated, over the past 16 months RBI upped its key policy rates a record 11 times or 325 basis points.