Inflation limiting RBI's ability to boost growth: Rajan

MUMBAI Tue Dec 31, 2013 8:52am 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 (1)
jvaishnav47 wrote:
Reserve Bank of India even if decrease repo rate /msf,there shall be no economic growth, employment generation, since inflation is due to
constraints on supply side, that too even without adequate demand .

Prices /tariff of essential items like lpg, cng, diesel, public transport, electricity have gone up because govt wants to reduce subsidy burden, central /state govt have increased fares of public transport, telephone bills etc ,food inflation is sky rocketed, all these have put common man in great trouble, domestic savings is dried up which has led liquidity crunch in Banking sector, loan defaults have increased

Govt spends tax payer /public money as capital infusion for decades long loss making entities like Air India, Indian Railways 7 now Public Sector Banks which have alarming amount of bad loans. Govt needs to come out from controlling such entities& utilise public money for social good, investment in infrastructure

Govt is failed to control corruption, could not reduce unnecessary expenses, cash transactions are uncontrolled which generates inflation, unaccounted money

Dec 31, 2013 5:41pm IST  --  Report as abuse
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