Days after surprising the market by upping its short-term rates, Reserve Bank Governor, D. Subbarao, on Wednesday said that the apex bank would continue its exit from the monetary stimulus to check high-inflation and ensure sustainable economic growth.
“If you have high inflation, you cannot have sustainable growth...it is better to take action now and continue the exit strategy...in the near term, we may have to sacrifice growth. (But) the RBI believes that it was necessary to achieve sustainable growth,” Subbarao said at a function here.
With a view to arrest the ballooning inflation, now above 8.5 per cent, the Reserve Bank last week hiked the repo, reverse repo rates (short-term lending and borrowing rates) by 0.25 per cent to 5 per cent and 3.5 per cent respectively.
In January, the central bank signalled the exit from its easy money stance by hiking the cash component banks have to park with the RBI at zero interest by 0.75 per cent to 5.75 per cent.
Subbarao said the Reserve Bank’s actions have helped to contain the surge in inflation, which is a threat to the economic growth, but warned that demand-side pressures could build up in the economy further.
