Mumbai: The headline inflation rate is way above the desired threshold level of Reserve Bank of India, central bank governor D Subbarao on Monday. He added that the RBI stance of monetary policy is aimed at restraining demand and managing inflation expectations.
"There is a threshold level of inflation. Below the threshold, may be, there is a trade-off between growth and inflation. But above the threshold, there is definitely no trade-off between growth and inflation," he said.
“The Reserve Bank of India is sacrificing growth only in the short-term and there is no growth-inflation trade off in the medium term,” he said on Monday.
However, Subbarao cautioned that his views on inflation should not be read as a preview to the decisions to be taken in the quarterly monetary policy review on July 31.
"What I do want to caution here is that I am not implying anything by way of what decision we might take at the policy review at the end of July. I am only saying that inflation is above the threshold," Subbarao said.
Defending the RBI's actions of continuous rate tightening in the past, Subbarao said the impact on growth has only been short-term and the RBI has been successful in trying to protect growth with price stability in the medium-term.
Referring to the sometimes divergent views of the government and the central bank on which route to take to economic growth, Subbarao said “The government and RBI are not adversaries, some disagreement is natural.”
India’s headline inflation in June fell to 7.25 per cent, lower than projections, but still above the comfort level of the Reserve Bank. The RBI, which uses the Wholesale Price Index (WPI)-based inflation number in its policymaking, is scheduled to hold its mid-quarterly policy review at the end of the month, but the high inflation number means it will likely keep its interest rates unchanged.
The inflation rate, measured by the Wholesale Price Index, is lower than a Thomson Reuters poll of 30 experts whose median projection was 7.62, the highest yet in the current financial year. Inflation in May was 7.55 per cent in the previous month. April inflation was revised upwards from 7.23 per cent to 7.5 per cent.
(With inputs from PTI)
"There is a threshold level of inflation. Below the threshold, may be, there is a trade-off between growth and inflation. But above the threshold, there is definitely no trade-off between growth and inflation," he said.
“The Reserve Bank of India is sacrificing growth only in the short-term and there is no growth-inflation trade off in the medium term,” he said on Monday.
However, Subbarao cautioned that his views on inflation should not be read as a preview to the decisions to be taken in the quarterly monetary policy review on July 31.
"What I do want to caution here is that I am not implying anything by way of what decision we might take at the policy review at the end of July. I am only saying that inflation is above the threshold," Subbarao said.
Defending the RBI's actions of continuous rate tightening in the past, Subbarao said the impact on growth has only been short-term and the RBI has been successful in trying to protect growth with price stability in the medium-term.
Referring to the sometimes divergent views of the government and the central bank on which route to take to economic growth, Subbarao said “The government and RBI are not adversaries, some disagreement is natural.”
India’s headline inflation in June fell to 7.25 per cent, lower than projections, but still above the comfort level of the Reserve Bank. The RBI, which uses the Wholesale Price Index (WPI)-based inflation number in its policymaking, is scheduled to hold its mid-quarterly policy review at the end of the month, but the high inflation number means it will likely keep its interest rates unchanged.
The inflation rate, measured by the Wholesale Price Index, is lower than a Thomson Reuters poll of 30 experts whose median projection was 7.62, the highest yet in the current financial year. Inflation in May was 7.55 per cent in the previous month. April inflation was revised upwards from 7.23 per cent to 7.5 per cent.
(With inputs from PTI)
