The Reserve Bank Deputy Governor, Mr K.C. Chakrabarty, today sought to stave off criticism that the nine-year low GDP growth was primarily due to the 20-month high interest rate regime, saying it was driven by a host of other factors.

“I don’t think that the interest rates are that high, or our policy rates are that high that should significantly affect growth. Growth is being affected for a variety of reasons. We are overplaying the interest rate aspect (for low growth). It may be one of the reasons,” Mr Chakrabarty told the Skoch summit here.

Buttressing his point further, he said: “I don’t know how much growth sacrifice is due to lack of productivity, lack of efficiency, and how much is it due to inflation.”

At 6.5 per cent, the economy slumped to the lowest rate in the past nine years in FY12, and many have blamed the Reserve Bank’s tight monetary policy, coupled with the policy paralysis and lack of strong political will at the Centre as reasons for the poor show.

Between March 2010 and October 2011, the RBI ramped up its key lending rates by 375 basis points in a 13 uninterrupted rate hike cycles to bring down inflation which was near double-digits.

But ironically, price index still hovers near 8 per cent, while growth has plunged, inviting criticism from many quarters, especially the industry.

However, Mr Chakrabarty admitted that interest rates do affect growth, saying “what we are saying why interest rates affect growth is because inflation affects growth. If inflation comes down, interest rate will also come down. But to say that growth is only going (down) because of high interest rates is a little bit exaggeration and we must look into that.”

“If inflation comes down, definitely monetary policy rate will come down,” he said, adding that “for the Reserve Bank, the first priority is inflation. It is not only growth, we have a multiple indicator approach. But, inflation is definitely the major concerns.”

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