Controlling inflation is important, says Gokarn

Monetary policy alone is not responsible for slowdown

Reserve Bank of India (RBI) Deputy Governor Subir Gokarn said even though monetary policy has a limited role in controlling inflation emanating from the supply side, the rise in prices cannot be ignored. He said monetary policy cannot alone be held responsible for slowdown in growth.

“Its important to keep inflation under control in order to support sustained process of growth,” he said at the FT-YES Bank International Banking Summit. He said inflation needed to be controlled whether by a combination of supply side or monetary side policies. “But the objective of controlling inflation is important,” he said.

The comment comes two weeks before the announcement of the second quarter monetary and credit policy, due on October 30.

The latest inflation data shows the wholesale price index (WPI) for September stood at 7.8 per cent, the highest in the past 10 months. RBI has been hesitant in easing monetary stance due to concerns over persistent inflation. This has drawn criticism from several quarters that the slowdown in growth is due to high interest rates.

According to Gokarn, in the past five years, India has seen both domestic and global upheavals that have impacted growth. Therefore, to attribute the slowdown in growth to monetary policy exclusively is misperceived, he said. “It would be great if fiscal and supply side policies also helped to keep inflation pressure down and in our case with respect to food prices, pressure has been more persistent,” said Gokarn. He added the argument that monetary policy has no role in controlling supply side inflation is also not valid.