(Adds more quotes, background)
By Sujata Rao and Carolyn Cohn
March 13 India's stubbornly high inflation must
come down to a 4 to 6 percent range, the country's central bank
chief said on Wednesday, noting full implementation of this
year's budget will have a "softening impact" on price growth.
"The Reserve Bank has to ensure that inflation is brought
down to the threshold level and is maintained there," Duvvuri
Subbarao, the Governor of the Reserve Bank of India (RBI)told
students in London.
His speech made available in advance to media, said that the
RBI estimates threshold level of inflation at 4-6 percent and
levels above that demanded monetary policy tightening.
The RBI holds a policy meeting next week and is widely
expected by analysts to cut interest rates by 25 basis points
to 7.50 percent.
India's headline wholesale price index inflation
had been above 7 percent from 2009 until January, when it fell
to 6.62 percent from a year earlier. It is expected to have
eased further to 6.54 percent in February, a Reuters poll
Subbarao, arguably the world's most hawkish central banker,
has repeatedly rebuffed government calls for lower interest
rates to kickstart growth which is at a decade-low, calling on
the government to do its bit via fiscal consolidation.
He said last week that India did not have the fiscal
capacity to continue welfare programmes at current levels.
In reply to a question, Subbarao described the recent
2013-2014 budget as "a positive" given its timing ahead of
elections next year and India's huge macroeconomic challenges.
"The finance minister delivered a very responsible budget.
You can quibble about how that is being achieved... but given
the circumstances, I think it's (the budget) very measured and
responsible," Subbarao said.
"If he delivers on that, from an RBI perspective, there'll
be some softening impact on inflation," he added.
Finance Minister P Chidambaram unveiled a 16 percent surge
in spending in the 2013-2014 budget, ahead of 2014 elections but
imposed taxes on the rich and large firms to fill the revenue
gap and cut the deficit. But most analysts consider his revenue
assumptions too optimistic.
"(India's) long-term growth drivers are intact but I also
want to say the india growth story is not inevitable. If we
don't do the right things we will squander an historic
opportunity," the RBI governor said.
Stepping away from the published speech, Subbarao said that
speaking from the perspective of emerging markets, currency wars
benefited no one while many developing economies suffered from
an erosion of competitiveness.
"We all understand it is a zero sum game. Everyone can't
devalue at the same time and benefit, everyone loses," he said.
(Additional reporting by Shamik Paul and Suvashree Dey Choudhry
in Mumbai; editing by Ron Askew)