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The Reserve Bank of India is willing to roll back its cash-tightening measures if the volatility in the foreign exchange market is curbed, said RBI Governor D. Subbarao on Thursday.
Delivering the R. Venkataraman Endowment Lecture at the Madras School of Economics here, he said the apex bank drew flak from different quarters for the measures it took to stem the fall of the rupee. Though this may cause some pain, it will not hurt growth. Having a stable exchange rate is important to attract investments, which in turn will spur growth, he added.
Speaking on ‘Dilemmas in central banking’, he said he did not agree with the criticism that the apex bank is obsessed with controlling inflation, regardless of the country’s economic growth.
Inflation focus
Though some say the RBI has failed in taming the inflation but managed to pull down growth, the reality is that the headline inflation, measured by the wholesale price index, came down from double-digit levels to around 5 per cent. But consumer price inflation is still ruling high, which is mainly due to certain distributional issues.
“I do not agree with the contention that RBI is obsessed with inflationary pressure. We have to keep in mind inflation, financial stability, and, at the same time, growth. We are concerned about all the three,” he said. But, in the current context, containing inflation is the prime agenda for the bank, he said.
Concerns of the voiceless poor were not heard by the media. But it is RBI’s responsibility to address them as inflation affects the poor the most. “We need to make some sacrifice of growth in the short term, while trying to bring down inflation. And, this is inevitable,” he said.
NPA level
On public sector banks having higher levels of non-performing assets compared with private banks, he said it is the result of management practices. The decision variables of public sector banks are different from those of their private sector counterparts. “The RBI is concerned about that and it has been discussed at various levels. We have put in some measures and will put in some more to control the NPA level,” he said.
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