Government to set up inflation target, RBI to implement - Chidambaram

NEW DELHI Sat Mar 8, 2014 12:01am IST

Finance Minister P. Chidambaram (L) and Reserve Bank of India (RBI) Governor Raghuram Rajan (2nd L) arrive to address a joint news conference in New Delhi March 7, 2014. REUTERS/Adnan Abidi

Finance Minister P. Chidambaram (L) and Reserve Bank of India (RBI) Governor Raghuram Rajan (2nd L) arrive to address a joint news conference in New Delhi March 7, 2014.

Credit: Reuters/Adnan Abidi

Related Topics

NEW DELHI (Reuters) - The government has the right to set the country's inflation target, while the Reserve Bank of India's (RBI) role is to implement the decision, Finance Minister P. Chidambaram said in a joint news conference with the RBI governor.

The comment by Chidambaram comes after a RBI panel in January proposed moving to an inflation target of 4 percent in three years, with a 2 percent band on either side when setting monetary policy, sharply below current levels.

The recommendation raised concerns about a potential clash with the traditionally more pro-growth finance ministry, which were further reinforced after RBI surprised investors in January by raising interest rates by a quarter percentage point, its third hike in five months.

But RBI Governor Raghuram Rajan has since publicly reiterated his agreement that the government and parliament would have the final say in any decision on whether to adopt an inflation target.

"The sovereign has the right to set the (inflation) target, and then the central bank has the mandate to take steps to achieve that target," said Chidambaram as Rajan sat by his side.

"I think there is a degree of convergence on the way to go forward, and I sincerely hope that in the years ahead we will be able to take this forward."

Rajan and Chidambaram addressed reporters after an RBI board meeting in New Delhi, which was attended by the finance minister.

Finance ministers traditionally attend RBI board meetings when they are held in the country's capital.

RBI's recent rate hikes come as the Congress-led ruling coalition faces general elections set to kick off on April 7. The opposition party Bharatiya Janata Party leads most national polls.

The focus on inflation targeting had raised expectations the RBI would focus primarily on bringing down consumer prices at the exclusion of growth, even though Rajan has repeatedly said he does not see a trade-off between both.

"The RBI is obviously worried about growth as much it is worried about inflation. The key question is how we go about achieving high growth with low inflation," Rajan said on Friday.

Rajan made the comments after moments earlier Chidambaram had said it was important for India to achieve both the goals of price stability and growth.

India's retail inflation has remained near 10 percent for the last three years mainly driven by food inflation, despite economic growth struggling at a decade low of nearly 5 percent.

(Writing by Suvashree Dey Choudhury in Mumbai; Editing by Kim Coghill)

FILED UNDER:

Religion and Politics

REUTERS SHOWCASE

Fund Raising

Fund Raising

Flipkart raises $700 million in fresh funding.   Full Article 

Reforms Push

Reforms Push

Modi may order insurance, coal reforms if vote delayed - officials.  Full Article 

Reuters Exclusive

Reuters Exclusive

India looks to sway Americans with nuclear power insurance plan  Full Article 

To Boost Growth

To Boost Growth

Crank up public spending to revive growth - chief economic adviser.   Full Article 

Bold Steps

Bold Steps

SpiceJet rescue plan marks bold bet on Indian aviation recovery.   Full Article 

New Airline

New Airline

Tata, Singapore Air venture Vistara to take off on Jan 9.  Full Article 

Online Sales

Online Sales

Knock knock. Who's there? Amazon's best-selling holiday author.  Full Article 

Hacking Attack

Hacking Attack

N.Korea says did not hack Sony, wants joint probe with U.S.  Full Article 

Reuters Poll

Reuters Poll

BSE Sensex to hit 32,980 by December 2015  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage