RBI policy moving in right direction: ADB

The Reserve Bank of India’s (RBI’s) monetary policy was moving in the right direction to curb inflationary pressures in the economy, Asian Development Bank (ADB) Chief Economist Jong-Wha Lee said today.

“To anchor inflation, RBI should hike key interest rates and lower liquidity,” Lee said, adding that the central bank was moving in the right direction.

In the last five months, RBI has raised reverse repo rate by 125 basis points (bps) and repo rate by 100 bps in a bid to control inflationary expectations.

India’s headline inflation rate, which touched a 19-month high of 11.23 per cent in April, has eased to 9.97 per cent in July. Asked about the quantum of rate hike RBI should undertake, Lee said: “It depends upon non-food inflation and core inflation as interest rate hike may not have an impact on supply-side.”

Lee was speaking to reporters after launching ADB’s annual statistical publication.

“The central bank should also look at the trend of core inflation and take cautious monetary policy decision,” he said. “RBI cannot always think of raising interest rates, as rate hike will bring in more capital inflows and this will lead to an appreciation in the exchange rate,” the chief economist said.