RBI finds itself isolated in war on inflation
As recently as last week, the RBI made clear that it will stick to its anti-inflationary stance despite censure from the government, which has signalled that 12 rate increases within 18 months are hurting growth and electoral prospects.
Inflation is near 10%, one of the highest among major economies in the world. India is among a handful of countries, such as Kenya and Nigeria, still raising rates, while the world frets over headwinds from a European debt crisis and a sputtering US economy. Neighbours in Asia have turned dovish, some such as Brazil and Turkey have already cut interest rates. Subbarao appears undeterred by the criticism. RBI sources say he is determined to keep policy tight, maybe even tighten it further. “Growth has a floor, but inflation has no ceiling,” said a senior RBI official. “If we don’t do anything, inflation expectations will rise.”
Until now, the government and the RBI have largely been on the same page when it comes to monetary policy, with near double-digit inflation not only an economic worry but also a political headache. But over the past few weeks, criticism and advice for the RBI chief have been more blunt than usual.
"I have had hesitation on a rate hike this time which in the past I did not,” said
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