Rates need to be raised to rein in inflation: RBI Governor

The RBI has to raise key rates to rein in inflation that may impact on short-term growth but to make mid-term growth sustainable, Reserve Bank of India Governor D. Subbarao has said. Delivering distinguished lecture at GITAM School of International Business on “India and the global financial crisis: what have we learnt?” here on Monday, he said the country recovered from the 2008 global crisis sooner than the other countries and as a result had been caught up in inflation for two years now.

With the wholesale price index going up, RBI had to revise rates 11 times since 2010. The inflation increased mainly due to increased demand in food in rural areas. Describing globalisation as a double-edged sword, he said high growth and poverty alleviation were benefits while the cost was invisible. The difference between the 1997-98 crisis and the one in 2008 was that India was more integrated with the rest of the world since the last 20 years, when the reform process began, the RBI Governor elaborated. The 2008 crisis hit financial, confidence and real channels.

On the lessons learnt, he pointed out that the ‘decoupling' of the economies like India, China, Russia, Mexico etc., from the advanced economies was unconvincing as it worked only sometimes. Answering a query, he felt world would be a safe place if all derivatives were brought on central counterparty platform. The RBI Governor grew nostalgic about his schooling at Korukonda near here, his stint as Sub-Collector, Parvatipuram and as Collector here for a brief while.

GITAM president M.V.V.S. Murthy, Dean and Director, GSIB, V.K. Kumar, and Vice-Chancellor G. Subramanyam also spoke.

  • With the wholesale price index going up, RBI had to revise rates 11 times since 2010, he says
  • Globalisation has benefits like high growth and poverty alleviation but the cost remains invisible

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