RBI not comfortable with inflation, to carefully adjust policy

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Rajan said economic growth was weak and inflation was high, which was a cause for concern (Reuters) Rajan said economic growth was weak and inflation was high, which was a cause for concern (Reuters)
SummaryRajan said central bank is not comfortable with inflation and would carefully calibrate its monetary policy

In the wake of a contraction in industrial production and a surge in retail prices, Reserve Bank of India Governor Raghuram Rajan today said the central bank is not comfortable with inflation and would carefully calibrate its monetary policy.

Inflation as measured by the consumer price index (CPI) soared to a nine-month high of 11.24 per cent in November while the Index of Industrial Production (IIP) contracted 1.8 per cent in October, according to government data.

"We have just got the IIP and CPI data. The WPI (wholesale price index) data is due next week. After taking an overall view of the data, we will carefully calibrate the monetary policy," Rajan told reporters after the RBI's central board meeting here.

Rajan said economic growth was weak and inflation was high, which was a cause for concern. Both monetary and fiscal policies were essential to tackle inflationary pressures, he said.

Regarding the fiscal policy, Rajan said the Finance Minister had laid down a road map that is expected to keep the fiscal situation under control. The government's fiscal deficit target is 4.8 per cent of GDP in this financial year.

Aligning diesel prices with international rates would definitely control the fiscal deficit, the Governor said.

"In the short term, hiking diesel prices will have an inflationary impact. But in the long run, this will lead to deficit reduction," he observed.

Vegetable prices rose 61.6 per cent in November from a year earlier. Fruit prices rose 15 per cent.

"The present system of delivery is high-cost, inefficient and lends to cartelisation. In this context, there is a need to look into the APMC (Agriculture Produce Marketing Committee) Act.

"RBI is not comfortable with the current level of inflation," Rajan said.

The next monetary policy review is due on December 18.

On new banking licenses, he said the RBI would make an announcement early next year, adding that there was no fixed number for how many would be given.

To another query, he said the RBI does not target government bond yield.

"We intend to keep the market with adequate liquidity for productive lending," he said.

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