For RBI, inflation is everything: Chakrabarty

The monetary authority and the government might have different views on balancing growth and inflation, but in the long term, both views would converge, said K C Chakrabarty, deputy governor of the Reserve Bank of India (RBI). This was on the sidelines of a conference on banking and finance organised by the Associated Chambers of Commerce and Industry of India here today.

“Many times, in a democratic set-up we can have different views. The monetary policy authority and the ministry can have different views. That does not mean that the RBI will not act according to what it considers right, because the perspective is different.” Chakrabarty said, when asked if RBI’s view on managing inflation and growth differed from that of the government.

Last month, Union Finance Minister Pranab Mukherjee, in Patna, had ruled out raising interest rates, even though annual inflation touched double digit at 10.16 per cent in May.

“No, I am not thinking of raising interest rates now. There will be inflationary pressure till July but this time I am not altering interest rates,” Mukherjee had said when asked if inflation would trigger a rise in interest rates. Two days back, RBI raised repo and reverse repo rates by 25 basis points each, soon after the government announced de-regulation of petrol and diesel prices.

“I have no idea in what context he ( Pranab Mukherjee) had said that. After that, he said, three times that it is up to RBI to decide on rates,” Chakrabarty added.

In fact, the finance minister today reiterated that if the monsoon was favourable, then 8.5 per cent gross domestic product (GDP) growth rate this year was feasible, and next year a nine per cent growth rate was foreseen. Thereafter, a double-digit growth on a sustainable basis was desirable, said Mukherjee.

However, Chakrabarty reiterated inflation was a deterrent to long-term growth.

“For RBI, inflation is everything. For the ministry, growth is everything. But in the long term, both will converge because inflation is the greatest enemy of long-term high growth,” said Chakrabarty.

On Sunday, however, the finance minister seemed to be in full agreement with RBI’s decision to hike rates even before the scheduled policy statement on July 27.

“So far as interest rates are concerned the 25 basis points enhancement in repo and reverse repo rates is a welcome and appropriate measure. I do hope it will be subsumed in the new policy statement which will be announced by the central bank during the later part of this month in July,” the finance minister told reporters.