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Reserve Bank of India (RBI) governor Raghuram Rajan, who called on finance minister Arun Jaitley on Tuesday morning soon after the latter took charge of the finance ministry, said fighting inflation remains a priority for the central bank.
He added that RBI has always maintained a balance between the imperative of keeping prices in check and the necessity of encouraging growth.
Speaking to the media after the meeting, which lasted for more than 45 minutes, Rajan said he had discussed a host of issues including steps to tame inflation with the finance minister. Jaitley has said the immediate focus of the government would be curbing the fiscal deficit and checking inflation.
RBI’s bi-monthly monetary review is scheduled on June 3.
“It (curbing inflation) is a task that the government and the RBI are engaged in,” Rajan said.
There is pressure on RBI to ease high interest rates to kick start a stagnant economy. India’s GDP growth rate fell to a decade low of 4.5% in 2012-13 and 4.9% in 2013-14. This is the first time in a quarter of a century that India has recorded two successive years of sub-5% growth.
There are few signs of the economy clawing back to a higher growth trajectory. Industrial production contracted 0.5% for the second successive month in March, even as consumer inflation rose to a three-month high of 8.59% in April.
Indian industry has been demanding a cut in interest rates to encourage credit-fuelled consumption that can kick start economic activity and fuel growth. Since taking over as EBI governor in September last year, Rajan has raised rates thrice in a bid to keep prices in check.
Speaking to reporters a while later, Jaitley underlined the need for a “balancing act” to address the issue.
“RBI has always maintained the balance between growth and inflation,” Rajan added.
On the current account deficit, which sharply narrowed to 1.7% of GDP in 2013-14 from 4.8% the previous year, Rajan said “yesterday’s number was very healthy”.