Inflation control still RBI's main agenda, says Chakrabarty

India's wholesale price inflation accelerated to an 8-month high of 7% in October, 2013

Deputy governor of the Reserve Bank of India (RBI) K C Chakrabarty on Friday said inflation control remained the “single agenda” of the bank in the current environment.

“Cost of money is high whenever inflation is high. That is why, if you see, our single agenda is to fight inflation. If we can make inflation low, the cost of money will come down,” he said during an interactive session organised by the MCC Chamber of Commerce and Industry here.

India's wholesale price inflation accelerated to an eight-month high of seven per cent in October, amid steep rise in vegetable prices. RBI had increased the repo rate for the second time in as many months on October 29 to combat inflation. The move prompted some of the top lenders, such as State Bank of India  and HDFC Bank to raise their lending rates.

Industry associations have been demanding a cut in lending rates and blaming high rates for slow economic growth .

"Growth is not sacrificed because of high interest rates. Growth is sacrificed because of high inflation. Many people argue it is supply side inflation (and cannot be controlled by interest rate hikes). Whatever may be the reason, people will not save if the rate of return is lower than inflation. If banks have to give higher rates for mobilising deposits, then they cannot lend money at lower rates," Chakrabarty said.

He added that while India Inc has been blaming banks for making their cost of operation expensive, companies have been reluctant in infusing fresh equity capital in their businesses.

"Interest cost will not be more than six or seven per cent of a company's cost of operation. All of you are talking about bank finance. But no project can work only with bank finance. Nobody talks about the equity. Do you mean to say you want to run a project with 100 per cent debt? One of our problems in the last four to five years is most of the companies have gone for debt-led finance. Even whatever equity they brought in was borrowed money. Quasi debt or structured equity is nothing but debt," Chakrabarty said.

However, he was optimistic that economic growth will accelerate with pick-up in exports, narrowing of current account gap and reduced volatility in foreign exchange rates.

But Chakrabarty declined to offer any outlook on the rupee/dollar exchange rate. "We do not predict. We are not in the business of astrology," he said.