RBI governor trains guns on inflation - Times of India

The author has posted comments on this articleTNN | Jan 29, 2014, 01.44AM IST

NEW DELHI: RBI governor Raghuram Rajan has once again ignored calls from North Block to ease interest rates and has focused his attention on taming price pressures. He has used the monetary policy review to signal that central bank prefers to go ahead with the recommendations of a panel set up to overhaul the policy regime and use the consumer price inflation as the key measure for inflation.

"The Dr. Urjit Patel Committee has indicated a "glide path" for disinflation that sets an objective of below 8% CPI inflation by January 2015 and below 6% CPI inflation by January 2016," Rajan said in the review. "The Reserve Bank's baseline projections set out in the accompanying review of macroeconomic and monetary developments for third quarter of 2013-14 indicate that over the ensuing 12-month horizon, and with the curren t policy stance, there are upside risks to the central forecast of 8%," he said.

The finance ministry had frowned upon the panel's recommendation in its preliminary assessment. Finance minister P Chidambaram had said that central bank's objective must be to support growth. "Inflation targeting is only one among the objectives," Chidambaram had told Bloomberg in an interview in Davos, where he was attending the World Economic Forum meetings. "Another objective of the RBI must be to support growth."

Economic affairs secretary Arvind Mayaram had said the CPI inflation measure has a lot of imperfections and inflation targeting may be difficult in India. Faced with slowing growth, policy makers in North Block, which houses the finance ministry, has been backing calls for easing interest rates. India Inc, too, seemed worried by the RBI's latest move on rates.

"At a time when growth slowdown is getting entrenched across sectors and industrial production is at a low, CII strongly advocates a shift towards an accomodative monetary policy stance, sooner rather than later," CII director general Chandrajit Banerjee said.

"And, this is an opportune time to accord a precedence to growth over inflation especially as prices are trending downwards, core inflation is within the comfort zone of RBI and inflationary expectations are not unduly high in view of a robust performance by the agriculture sector," he added.

But, Rajan has held out hopes of an easing in the months a head. "The extent and direction of further policy steps will be data dependent, though if the disinflationary process evolves according to this baseline projection, further policy tightening in the near term is not anticipated at this juncture."

And the former IMF chief economist is also banking on the fact that these will help him shield growth, which should witness an upturn from the next fiscal year.

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