Sen cautions RBI against hawkish policy stance

The country's chief statistician Pronab Sen today cautioned RBI against taking a hawkish monetary policy stance, saying too many measures to control inflation can be detrimental to growth.

"Very very strong measures (monetary) can be detrimental to growth," Sen said, while inaugurating workshop on the National Consultation on Certification of Project Managers.

Core inflation entered provisionally double digits in May, fueled by over 16 per cent food inflation.

While the government has been projecting the economy to expand by 8.5 per cent this fiscal, it has acknowledged inflation as major cause for concern.

Asked if the Reserve Bank of India (RBI) could take some monetary steps, Sen said, "Yes, it could as core inflation is starting to get worrying. But it is not just inflation it is full bunch of other sectors that RBI need to take into account (before tightening of the money supply)."

Factory output grew at a healthy rate of 17.6 per cent in April, but higher interest rate regime could curtail corporate spending and hit borrowing for new investment -- key to economic growth.

Asked whether RBI will raise the amount of deposits that banks are mandated to park with the apex bank (CRR) or the short-term lending rate (repo rate), Sen said, "Whether it is CRR or repo rate, it depends on the diagnosis of the problem."

Asked when the apex bank should take the monetary steps, he said, "Anytime, RBI has to take a call on that."

In April this year, RBI had hiked key short-term rates and banks' cash reserve requirement by 25 basis points each to rein in inflation.

The apex bank hiked repo and reverse repo by 25 basis points each to 5.25 per cent and 3.75 per cent, respectively.