The Reserve Bank of India’s monetary policy signal is to control inflation as it will support growth in the long term, said Subir Gokarn, Deputy Governor.
“It is very important for people — consumers, investors and stakeholders — to have some confidence in the system’s commitment to lower inflation,” Gokarn said at the Bombay Management Association’s 15th Finance Convention.
The best way to deal with the issue, as the RBI has discovered from global experience, is a very strong commitment to inflation control in terms of policy action and policy signal, he said.
When people start to believe that inflation is out of control, expectations of price rise gets entrenched in their behaviour, he added. These comments come ahead of the mid-quarter policy review due on December 18. Growth in the second quarter has slowed to 5.3 per cent even as wholesale price index-based inflation at 7.45 per cent continues to be above the RBI’s comfort level. Given this scenario of low growth and high inflation, the central bank faces a tough call on the policy rate front.
The industry is expecting the central bank to lower the interest rate, which it last cut in April. Economists say the central bank may either cut the repo rate or the cash reserve ratio (CRR) by 25 basis points in its December review.
Gokarn said the main focus of the central bank is liquidity management to ensure financial stability. The RBI is using exclusive liquidity management tools such as open market operations and tweaking the CRR without compromising on its monetary policy stance.