A fortnight ahead of the next bi-monthly monetary policy review, Reserve Bank of India Governor Raghuram Rajan, on Thursday, said the ‘best tool’ available with the central bank to control price rise was interest rate.
“Our best tool to control inflation is interest rate,” he said, adding that the government too had tools such as increasing agricultural production and improving supply.
Seasonal effects “Both need to work together and will work together. We were expecting some increase in the CPI number because of the seasonal effects from vegetable prices, but it came more than anticipated by the consensus forecast. We will study them in greater detail. What does it suggest is that inflation is high as far as food prices go,” he added.
Dr. Rajan was talking to reporters after the RBI’s board meeting here.
However, he said the core inflation had been coming down but though ‘very very gently’. Retail or consumer price index (CPI) inflation rose to a three-month high of 8.59 per cent in April.
Dr. Rajan further said the RBI was a technocratic organisation and worked with the government.
“We do not use the rupee as the way of managing inflation. We are not trying to rely on a particular level of rupee to help us on the inflation front,” he said.
He said sometimes it can prove dangerous if ‘you become overly reliant’ on certain level of rupee.
Instead what RBI has focused on is creating conditions inside the country for reduction in inflation.
“Thus far we feel comfortable with the pace of progress. Of course, there are blips up and down...,” the Governor added.
He said people of India wanted lower inflation and “we will do whatever we can on the inflationary front.’’
Dr. Rajan exuded confidence that retail inflation would come down to 6 per cent by March, 2016. “We are very comfortable with the fact that we can achieve what the Urjit Patel committee suggestion of 8 per cent inflation at the end of the rear and 6 per cent at the end of next year.”
On the challenges before the new government, Dr. Rajan said slowing growth, high inflation and twin deficits would have to be tackled on a priority basis.
After slipping to a decade low of 4.5 per cent in 2012-13, the growth inched up to 4.9 per cent in 2013-14. In the current year, the growth is estimated to rise to 5 per cent.
The WPI inflation has eased to 5.2 per cent, while the retail inflation is still high at 8.59 per cent in April.
Replying to questions on black-money, Dr. Rajan said the RBI was not directly involved in curbing the menace, and it was primarily a function of the government.
“...we can detect some of these activities as a result of monitoring of foreign exchange transactions. We do certainly work with the government. But in terms of bringing back black—money that is really primarily a function of government,” he added.
