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Growth slowdown not commensurate with inflation control: RBI

By Religare
Growth slowdown not commensurate with inflation control: RBI
The Reserve Bank of India (RBI) has said that growth slowdown has not been commensurate with inflation control.

"Interest rate is a blunt instrument. It first slows growth and then inflation. But the growth slowdown has not been commensurate with inflation control," said Deepak Mohanty, RBI's executive director.

Mohanty said that RBI raised repo rate 13 times between March 2010 and October 2011 by a cumulative 375 basis points, taking the repo rate up to 8.5 per cent from 4.75 per cent, but it had a little impact on inflation.

However, as the headline inflation fell to 7.18 per cent from 7.24 per cent in November, RBI found the much-needed elbow room to cut rates and boost growth.

Mohanty also said that policy action was needed on various fronts to further bring down inflation. "This will require addressing the supply-demand imbalance in the agricultural sector and modernising the supply chain," he said.

He further added that "The bulk of our fossil fuel requirement is met by imports. A necessary step in this direction is market-related pricing of petroleum products to economise consumption and reduce the subsidy burden. This should be supplemented by a step up in electricity generation so as to minimise the fall back option of diesel generation of power."

He stressed that reliability of power supply and availability of necessary industrial raw materials are important for industrial capacity utilisation and improvement in productivity, which in turn will help inflation.

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