The Reserve Bank on Sunday said managing prices is its main priority and Friday’s decision to raise key short-term lending rates was aimed at containing inflation, which is hovering above 10 per cent.
“For RBI inflation is everything... for (finance) ministry, it is growth. But in the long run, both will converge... inflation is the biggest enemy,” RBI Deputy Governor K.C. Chakrabarty told reporters on the sidelines of an Assocham function here.
The RBI on Friday evening, weeks before its scheduled policy review on July 27, raised the short-term lending and borrowing (repo and reverse-repo) rates by 25 basis points to 5.5 per cent and 4 per cent, respectively, to check rising inflation.
“We don’t increase anything by less than 25 basis points. In that, it is a baby step,” Mr. Chakrabarty said, justifying the decision of the Central Bank to go in for a mid-course policy correction.
On the possibility of more monetary action by the RBI on July 27, he said, “There may be or not be. Currently it is in the internal debate stage. I cannot disclose it.”
Economists are of the opinion that the RBI might announce more monetary tightening measures at its scheduled policy review on July 27, as inflation is very high.
Wholesale prices-based inflation crossed double digits (10.16 per cent provisionally) in May, but as per final figures, the rate of price rise has been 11 per cent or more since February. Food inflation eased to 12.92 per cent in the third week of June from above 16 per cent.
While raising the short-term rates, the RBI had said, “The developments on the inflation front, however, raise several concerns... Food price inflation and consumer price inflation remain at elevated levels. There has been some moderation in food price inflation, but the price index of food articles continues to increase.”
On whether the RBI had different views than what is being advocated by the Finance Ministry, the Deputy Governor said, “We can have different views. Monetary policy authority and the (finance) ministry can differ.
“Even if we take anti-inflationary measures, it does not mean that we are against growth. Immediately, growth might suffer, but in the long-term, there will be inclusive growth,” he added.
Replying to questions on the new banking licensing policy, Mr. Chakrabarty said the RBI would come out with a policy discussion paper by the end of July.
Finance Minister Pranab Mukherjee, in his Budget speech in February, had said that the RBI would grant banking licenses to private sector entities and non-banking finance companies (NBFCs).