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In yet another indication that the Reserve Bank of India will press ahead with its calibrated rate hikes, the Deputy Governor, Dr Subir Gokarn, on Tuesday said the central bank cannot afford to be slack on inflation merely because it is coming from a certain set of factors.
Monetary Policy, according to the top RBI official, cannot stay idle on the assumption that inflation is not from the demand side. In its mid-quarter Monetary Policy review last month, the RBI said that based on the current and evolving growth and inflation scenario it is likely to persist with the current anti-inflationary stance.
Allaying fears that hike in interest rates by the RBI could lead to a slowdown in investments, Dr Gokarn said it is better to have some constraint or restraint now with prospects of stabilisation later on, as against no restraint now and collapse later. “We don't want to be in a situation where the only way to deal with inflation is to squeeze out growth completely. Sustainability of growth in future requires lower inflation now,'' the Deputy Governor said in his address to the members of industry body, FICCI.
If there are signs of a spill over from supply side to the core, then a monetary response is warranted to prevent the process from spiralling out of control, Dr Gokarn said. “The challenge is to keep growth as high as possible without the risk of inflation spiralling out of control,'' Dr Gokarn said.
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