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Updated: August 29, 2012 23:01 IST

Battle against inflation has not ended yet: RBI

PTI
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D.Subbarao
D.Subbarao

Structural inflation is a problem of India’s success story, specifically the growing income of the poorest sections

Reserve Bank of India Governor D. Subbarao has said the battle against inflation has not ended yet and high prices are mostly hurting the poor people, who do not have a mechanism to get their voice heard.

The inflation continued to remain high and needed to be brought down to “more acceptable” levels of 5 per cent or less, Dr. Subbarao said here, while noting that the challenge was to calibrate interest rates to control inflation and support economic growth at the same time.

“People are hurt by inflation, largely the poor people. They don’t have the mechanism to get their voice heard,” he said while delivering a lecture at Cornell University on ‘India in a globalizing world: some policy dilemmas’.

“I believe that the battle against inflation has not ended yet... We need to bring it down to more acceptable levels of 5 per cent or even less than 5 per cent,” he said.

Inflation, as measured by the Wholesale Price Index, stood at 6.87 per cent in July, down from 7.25 per cent in June. It is still much above RBI’s comfort level of 5-6 per cent. Dr. Subbarao has maintained that inflation needed to remain the top priority for the RBI.

“To control inflation we need to keep interest rates high, but to support growth we need to keep interest rates low,” he said.

“The challenge is: How do you calibrate interest rates?” he added.

The RBI had cut its main interest rate in April by 50 basis points to 8 per cent, but the central bank did not reduce the benchmark interest rates in its first quarter credit policy review in July despite pressure from the industry, which wants reduction in interest rates to spur growth. The RBI is scheduled to review its monetary policy on September 17. India’s economic growth slipped to 9-year low of 6.5 per cent in 2011-12.

The Prime Minister’s Economic Advisory panel has pegged GDP growth for the current fiscal at 6.7 per cent.

Industrial production recorded a dismal growth of 2.4 per cent in May.

Dr. Subbarao said the central bank had been able to reduce price pressures by reducing inflation to 7 per cent from 11 per cent.

Noting that India’s economic growth had fuelled inflation in the price of food, Dr. Subbarao said, “Structural inflation is a problem of India’s success story, specifically the growing income of the poorest sections.”

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“the battle against inflation has not ended yet and high prices are mostly hurting the poor people, who do not have a mechanism to get their voice heard”
It makes sense. RBI at last has understood the conditions of the poorest of the poor! They have understand why the farmers commit suicide, about one per day.

from:  gopinathan krishnan
Posted on: Aug 30, 2012 at 10:14 IST
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