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The Prime Minister's Economic Advisory Council (PMEAC) has endorsed the seemingly aggressive RBI move to hike policy rates by 50 basis points, stating that “strong action” was called for given the unrelenting inflation.
“The RBI is on the right track. Inflation has remained at high level for quite sometime now. The concern of RBI must be to contain inflation and bring it down as fast as possible. The RBI has responded in right way,” Dr C Rangarajan, PMEAC Chairman, told Business Line here.
Growth rate
On the impact of RBI policy action on economic growth rate, Dr Rangarajan said that the rate hike must not be viewed in the context of immediate growth rate, but in terms of sustained growth rate over medium term.
A high level of inflation adversely affects growth in the medium term because the inflationary expectations drive investments in the wrong direction, he said.
While welcoming the RBI move to hike savings bank rate by 50 basis points, Dr Rangarajan also said that in his view the RBI must “deregulate” the savings bank rate. He also hailed the RBI move to use repo rate as the single rate for signalling monetary policy stance.
The PMEAC now sees India's economic growth for 2011-12 at 8-8.5 per cent.
The advisory body had earlier forecast a much higher growth for the current fiscal.
While the Government had forecast GDP growth of 9 +/- 0.25 per cent for 2011-12, the RBI today pegged the growth projection at 8 per cent for the current fiscal.
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