Inflation limiting RBI's ability to boost growth: Rajan

MUMBAI Mon Dec 30, 2013 3:05pm IST

1 of 2. Raghuram Rajan listens to a question during a news conference in Mumbai September 4, 2013.

Credit: Reuters/Danish Siddiqui/Files

MUMBAI (Reuters) - Reserve Bank of India Governor Raghuram Rajan said the challenge of containing inflation is limiting the central bank's ability to boost economic growth, while urging the government to continue with fiscal consolidation to support the economy.

The comments were included in the foreword of the central bank's financial stability report published on Monday, which comes after the RBI surprised investors by keeping interest rates unchanged this month after raising them by a total of 50 basis points in September and in October.

Analysts say the RBI could resume tightening monetary policy by early next year should inflation remain high, even as the economy is growing below the decade low of 5 percent posted in the fiscal year ending in March.

The report also reiterated the RBI's previously stated concerns about the level of bad assets in the banking sector, while noting a corporate "failure" could trigger contagion in the interlinked banking system.

"The outlook for the economy has improved, with export growth regaining momentum, but growth is still weak," Rajan wrote.

"The challenges of containing inflationary pressures limit what monetary policy can do."

The RBI report also called the "fall in domestic savings and relatively high fiscal deficit" as other key concerns for the Indian economy.

The government is expected to slash spending to meet a fiscal deficit target of 4.8 percent of gross domestic product for the year ending in March.

Rajan urged the government to continue to push through policy reforms and fiscal consolidation, while noting the prospect of a divided verdict in general elections due by May was creating investor uncertainty.

"Policy certainty is something investors look for in the current environment," Rajan wrote in his foreword.

"A stable new government would be positive for the economy," he added.

(Reporting by Suvashree Dey Choudhury; Editing by Rafael Nam)

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Comments (2)
jvaishnav47 wrote:
RBI has limited options, increase or even reduction in Repo rate
shall not boost growth ,generate employment & even credit demand shall not be picked up ,as expected.

Country needs investment in infrastructure, foreign direct investment
in infrastructure, services, industries ,& should not mainly depend upon FII which only helps capital market, it is short term investment
& when it shall start outflow, position shall become worst.We need to regain investors confidence ,control unnecessary expenses, like delay in implementation of projects due to various clearances etc POPULIST SCHEMES with subsidies shall not boost growth but shall raise fiscal deficit.
It is regretted ,Govt /RBI failed to visualize position of Bad loans
In public sector Banks , unethical means to hide out npa, asset quality have made Banks position weak.No one has taken cognisance,
what Auditors, Bank Management, Independent Directors are /were doing? Govt/RBI forgets that Banks are dealing with public money
hence it must be top priority of Banks to safe guard interest of depositors, stake holders,Investors.
RBI has even not taken action on increase in various basic charges by Banks which are levied to wipe out npa provisioning /write offs

Dec 30, 2013 5:47pm IST  --  Report as abuse
jvaishnav47 wrote:
RBI has limited options, increase or even reduction in Repo rate
shall not boost growth ,generate employment & even credit demand shall not be picked up ,as expected.

Country needs investment in infrastructure, foreign direct investment
in infrastructure, services, industries ,& should not mainly depend upon FII which only helps capital market, it is short term investment
& when it shall start outflow, position shall become worst.We need to regain investors confidence ,control unnecessary expenses, like delay in implementation of projects due to various clearances etc POPULIST SCHEMES with subsidies shall not boost growth but shall raise fiscal deficit.
It is regretted ,Govt /RBI failed to visualize position of Bad loans
In public sector Banks , unethical means to hide out npa, asset quality have made Banks position weak.No one has taken cognizance,
what Auditors, Bank Management, Independent Directors are /were doing? Govt/RBI forgets that Banks are dealing with public money
hence it must be top priority of Banks to safe guard interest of depositors, stake holders,Investors.
RBI has even not taken action on increase in various basic charges by Banks which are levied to wipe out npa provisioning /write offs

Dec 30, 2013 5:48pm IST  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

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