Inflation remains primary concern for RBI: Gokarn

Written by Press Trust of India | Mumbai | Updated: Dec 9 2012, 06:34am hrs
Subir GokarnSubir Gokarn, RBI deputy governor
Days ahead of the mid-quarter review of the monetary policy on December 18, Reserve Bank of India (RBI) deputy governor Subir Gokarn said on Saturday inflation continues to the primary concern for the central bank. His comments come amid growth in the second quarter falling to 5.3% in July-September period, triggering demands for a rate cut by the RBI to boost the economy. RBI should not do anything that provides some short-term stimulus to growth but also raises the risk of longer term inflation, he said at an event here.

One action is not necessarily going to make the difference. But there are risks associated as well, Gokarn said, adding that inflation continues to be the primary concern of the monetary policy.

According to many analysts, the central bank will hold the rates on December 18 as inflation continues to be high, at 7.45% in October. At the last policy announcement, RBI had left the short-term lending rates unchanged at 8%.

Gokarn said RBI should not fall prey to trying out something opposite if one set of actions, in this case the anti-inflationary stance, is not working. The belief that just because something does not seem to be working, the exact opposite is the solution (is incorrect), he said.

On Thursday RBI governor D Subbarao had hinted that rate cuts are on the anvil as growth has moderated steeply.

Gokarn said a commitment to walking on a fiscal consolidation roadmap and introducing tax reforms like GST will help the country avoid a downgrade by global rating agencies. Noting the positive impact on state finances when VAT was introduced, he said GST will have a similar impact. On the fiscal deficit, the RBI deputy governor underlined the need to invest in capital formation.