SEARCH

Business

Updated: August 5, 2010 23:00 IST

Subbarao: no magic formula to contain inflation

Special Correspondent
print   ·   T  T  
D. Subbarao
PTI
D. Subbarao

Reserve Bank of India Governor D. Subbarao has said that there was no magic formula to contain inflation and it is not practical for a central bank in an emerging economy like ours to focus exclusively on inflation oblivious of the large development context.

Dr. Subbarao said bankers cannot sit in their air-conditioned offices stating that inflation was from supply side claiming monetary policy was the first line of defence. He was replying to questions from the audience after delivering the 10th C. D. Desmukh memorial lecture “financial crisis — some old questions and may be some new answers” organised by the Council for Social Development here on Thursday.

In a lecture centred on the questions facing the country's financial stability, arguments about decoupling, persistence on inflation targeting mechanism for managing capital account and fiscal dominance of monetary policy, he said the autonomy of monetary policy from fiscal compulsions was once again under threat and resolving it would require credible efforts by both the government and the central banks.

Dr. Subbarao said “If inflation is way off target, a central bank's first call is to bring it within acceptable range and the bank should focus on other objectives,” he said.

On imposing controls for managing the capital account, he said “wisdom lies in making haste slowly” pointing that capital accounts could be opened up but after calibrating the opening to the domestic and external circumstances. He said strong decoupling did not work as no country could be an island in a globalised world. “It is, however, possible for economies to insulate themselves against external crisis for which they need to diversify their drivers of growth and institute automatic stabilisers,” he said.

Referring to financial stability, the RBI Governor said there was clear reflection of a decisive shift towards giving increased responsibility for systemic oversight and prudential regulation to central banks.

RELATED NEWS

Our steps curtailed food inflation: Pranab August 5, 2010

More In: Business | Economy

Commodity prices

Take a look at the prices of various commodities in Chennai here»

Instagram

O
P
E
N

close

Recent Article in Business

Raghuram Rajan

RBI can’t flip-flop on interest rate: Rajan

Apex Bank is not against growth, it is for sustainable growth »