Understandable focus on inflation: Ajay Srinivasan

The Reserve Bank of India continues to follow a path of

The central bank undoubtedly faces multiple macro-economic challenges. Growth has slowed meaningfully, inflation remains sticky and the country faces elevated current account and fiscal deficits. The Reserve Bank of India (RBI) has lowered the year’s gross domestic product growth forecast from 6.5 per cent to 5.8 per cent and increased the March 2013 inflation forecast from seven to 7.5 per cent. The extent of slowing is highlighted by the fact that the latest FY13 growth projection is 150 basis points below the one of 7.3 per cent in April.

RBI is essentially trying to navigate the twin problems of slowing growth and sticky inflation with a two-pronged approach. First, to make sure there is ample liquidity in the system and productive sectors are not starved of credit. This explains why it has cut the CRR rate 175 bps, from six to 4.25 per cent in the past 10 months. Second, RBI is trying to lower the high inflation and inflationary expectations faced by the country since 2010. As it says, “managing inflation and inflation expectations must remain the primary focus of monetary policy”.

 

As the impacts of diesel price rise fade and inflation shows signs of moderating, we expect RBI to be much more focused on targeting our growth slowdown.

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Ajay Srinivasan 
Chief Executive, Aditya Birla Financial Services