Dr D. Subbarao, Governor, Reserve Bank of India, on Friday said that maintaining the right balance between growth and bringing down inflation within acceptable limits will be a challenging task for the central bank.

“There are several challenges, first is striking the right balance between growth and price stability,” Dr Subbarao said while speaking at the 3rd national conference on leadership organised by the CII-Suresh Neotia Centre of Excellence here today.

Defends monetary tightening

Defending the RBI’s aggressive monetary tightening, which has drawn criticism for its impact on growth, Dr Subbarao said, “It is a legitimate concern that inflation has not come down appreciably despite hikes in interest rate 13 times since March, 2010, but it has to be noted that the rate of price rise would have been even higher had monetary tightening steps not been taken. Inflation rate could have been higher at 12-13 per cent unlike 9.7 per cent at present."

In spite of low growth due to the sovereign debt crisis in Europe, India was not into recession, he said. “There is a projection that Europe will grow by minus two per cent in 2012. A lot of people are talking about recession. Our growth rate might have fallen, but to say it is a recession would be a challenge to text book economics,” he pointed out.

In its mid-year economic scorecard on Friday, the Government lowered its gross domestic product (GDP) target between 7.25-7.75 per cent, against the original estimate of 9 per cent.

The RBI would also endeavour to manage volatility in exchange rate and ensure smooth movement of rupee.

Capital account convertibility of the rupee would not take place unless there was fiscal stability and more developed financial markets. “We need to have fiscal stability in the country, we need to have more developed financial markets, we need to have more stable growth and steady inflation before we are able to remove the barriers on the capital account,” he said.

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