'High retail inflation due to cyclical, distribution problems'

Central bank head believes, at demand level inflation has come down; some sacrifice for growth needed

Don't want to miss the best from Business Standard?

Cyclical and distribution problems are the main reasons for high retail inflation, Reserve Bank of India (RBI) Governor D Subbarao said here on Thursday, adding the country should make some short-term “sacrifice” of growth to bring down inflation.

India’s wholesale price-based inflation quickened to 4.86 per cent in June, while the consumer price inflation (CPI) at the retail level picked up to 9.87 per cent. Delivering the R Venkataraman Endowment Lecture at Madras School of Economics, Subbarao said: “At the demand level, inflation has come down and some sacrifice of growth is needed, but this (sacrifice) is for short time.”

He said treading the growth-inflation balance is the key dilemma the central bank is facing. The key objectives of the monetary policy are containing inflation, stimulating growth and ensuring financial stability.

“In our context, RBI tries to get the right balance. When it comes to supporting growth, we need to keep interest rates low and when it comes to containing inflation, we need to make money more expensive. This is the biggest challenge,” he said. The rupee has lost 8.91 per cent against the dollar since January. Commenting on rolling back the cash-tightening measures, he said: “It will be in place until the volatility is controlled.”

Asked why public sector banks’ non-performing assets (NPAs) were higher than private banks, he said: “It’s true that NPA level in public sector banks are higher, because of management practices.”

Decision variables are different; therefore, NPAs are higher than private banks.  In RBI, we are concerned about that and its been discussed at various levels. We have put in some measures...”