‘Inflation still too high for comfort’
The Reserve Bank of India (RBI) governor, D Subbarao, said that the battle against inflation has not ended yet as inflation remains high and needs to be brought down to ‘more acceptable’ levels.business Updated: Aug 29, 2012 21:56 IST
The Reserve Bank of India (RBI) governor, D Subbarao, said that the battle against inflation has not ended yet as inflation remains high and needs to be brought down to ‘more acceptable’ levels.
“I believe that the battle against inflation has not ended yet,” said Subbarao on Tuesday while delivering a lecture at Cornell Univ-ersity, New York. “We need to bring it down to more acceptable levels of 5% or even less.”
Inflation as measured by the Wholesale Price Index (WPI) stood at 6.87% in July, down from 7.25% in June, which is still much above RBI’s comfort level of 5%.In its latest monetary policy review last month, the central bank raised its headline inflation projection for the year ending March 2013 to 7% from 6.5%, while lowering its GDP growth forecast to 6.5% from 7.3%.
The governor said that that much of the criticism of the bank’s policy was coming from a ‘very articulate’ growth lobby in India that includes companies, and said the central bank must also consider other constituents, including the poor.
“People are hurt by inflation, largely the poor,” Subbarao said. “They do not have the mechanism to get their voices heard.”
The RBI had cut repo rate in April by 0.5 percentage points to 8%, but the central bank did not reduce the benchmark interest rates in its first quarter policy review in July despite pressure from the industry, which has been asking for interest rate cuts. He said cutting rates may support growth in the short-term, but high and persistent inflation will harm the economy in the longer term.
“To control inflation we need to keep interest rates high, but to support growth we need to keep them low. The challenge is how you calibrate interest rates.”
The RBI is set to review its mo-netary policy on September 17.
With inputs from agencies