Need to focus on growth, says Mayaram ahead of RBI policy

Ahead of the RBI's monetary policy review, Economic Affairs Secretary Arvind Mayaram has pitched for shifting the policy focus to growth as interest rates do not have a bearing on food inflation.

"I will not like to second-guess the RBI at all...I will fervently appeal to anybody who listens to us that they should vote in favour of growth and take decisions accordingly," he told PTI.

The Reserve Bank, which has increased interest rates twice to contain inflation since Raghuram Rajan took over as Governor in September, has scheduled the Third Quarter Review of Monetary Policy on January 28.

At the Mid-Quarter Monetary Policy Review on December 18, the RBI kept the policy repo rate unchanged at 7.75 per cent and said it would act if warranted so that inflation expectations stabilise and an environment conducive to sustainable growth takes hold.

The RBI may have a tough time deciding its policy stance in view of contracting industrial output and rising inflation.

While industrial output shrank 2.1% in November, touching the lowest level in the past six months, inflation measured by the Wholesale Price Index rose to a 14-month high of 7.52% in the same month.

Mayaram argued that demand for food products is inelastic and is not influenced by the movement in interest rates.

"I don't think there will be much of an impact of increase in interest rates on food inflation, on other inflation, yes.

"Now there is a purist theory that overall demand gets suppressed if interest rates are higher. We don't see that evidence. In last four years, the RBI has increased policy rates almost 24-25 times. But it has had no impact on food inflation. So there is no evidence to show that it does," he said.

Food inflation in November stood at 19.93%, driven mainly by a 95.25% spurt in prices of vegetables alone.