Price stability essential for growth: Subbarao

"Key to our collective national aspiration for sustained high economic growth is low and steady inflation," RBI Governor D Subbarao said while addressing a meeting of bankers' club.

He further said that only under an environment of price stability investors and consumers could make informed choices and contribute to growth.

The responsibility of RBI is to anchor inflation expectations and ensure price stability, he said, adding "neither theory nor empirical evidence presents a credible case for acquiescing in a new normal for inflation in India".

Moreover, he added, "there is no empirical evidence to establish that the benefits of higher growth outweigh the costs of welfare loss associated with higher inflation."

Observing that government does not have the fiscal capacity to continue welfare programmes at existing level, he said, "fiscal responsibility will act as a self-limiting check on the wage-price spiral".

Finance Minister P Chidambaram proposes to bring down the fiscal deficit to 4.8 per cent of the GDP in 2013-14 from 5.2 per cent estimated in the current fiscal.

RBI, which had been maintaining tight monetary policy stance in view of high inflation, had last month lowered the key interest rate by 0.25 per cent. There is pressure on the RBI to further reduce interest rate to arrest decline in growth.

RBI is slated to announce next mid-quarter

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