Sacrificing growth to tame inflation: Subbarao to critics

Sacrificing growth to tame inflation: Subbarao to critics

RBI Governor D Subbarao has hit back at critics of his hawkish stance against rate cut saying a little sacrifice in growth is inevitable to tame inflation.

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BI Governor D Subbarao has hit back at critics of his hawkish stance against rate cut saying a little sacrifice in growth is inevitable to tame inflation.

Speaking at the Asia Society here, he parried a question on whether there will be a change in interest rate when RBI reviews its policy on September 17.

Criticism, he said, is often directed towards the central bank that even though it has raised interest rates and runs a tight monetary policy, inflation is still "high and persistent" and growth has been hurt.

"The RBI's response to the criticism is that some sacrifice of growth in inevitable, a necessary price we have to pay to bring down inflation. But that sacrifice of growth is only in the short term," he said during a lecture on 'India in a Globalizing World - Some Policy Dilemmas' last night.

Noting that inflation was down from 11% in 2010 to below seven per cent in July this year, Subbarao said inflation could have been much higher if RBI had not run a tight policy.

"In the medium term, a low and stable inflation is a necessary precondition for securing India's growth prospects," he said. Inflation based on the Wholesale Price Index stood at 6.87% in July, declining from 7.25% in June.

It is still however much above RBI's comfort level of 5-6%. The challenge for the RBI is to ensure inflation is reined in without hurting growth, he said.

"In order to support growth, we need to keep interest rates low but in order to rein in inflation we have to keep interest rates high. The challenge is how do we manage growth-inflation trade off," he said.