A day after RBI Governor D Subbarao dashed hopes of a pause on hiking rates, his deputy K C Chakrabarty hinted at continuation of the tight monetary policy, despite the country showing a decline in economic growth parameters.
All the same, Chakrabarty said monetary policy had its own limitations when it came to arresting high inflation in the long run, saying price pressures could only be brought down by addressing supply-side issues and reducing manufacturing cost. “If inflation remains high, interest rates will also be high,” he told reporters on Friday on the sidelines of a seminar organised by the Federation of Indian Chambers of Commerce and Industry in association with United Nations Development Programme, India.
When asked if the Reserve Bank would further hike the policy rates, he said that the deputy governor said he could not answer the question based on just one figure (monthly inflation for September). The decisions in the policy review are taken after due research and analysis of many factors, he added.
“There is something called minimum medicine that needs to be given,” he said when questioned on the series of policy rate hikes.
Yesterday, the RBI governor had indicated that it might not soon give up on its tight monetary stance. “Had we not raised the rates, how much would have been the inflation,” asked Subbarao. “Despite so much tightening, inflation runs as high as 9.8 per cent as of August,” he said in Jaipur.
RBI has raised policy rates 12 times since March last year, but inflation still remains over 9 per cent for months.
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The bank is now slated to come out with its monetary review on October 25.
Chakrabarty, earlier addressing the participants from the banking sector and micro finance institutions, asserted that RBI has removed all the roadblocks in effectively carrying out financial inclusion. “The poor are more bankable than the rich. The only expectation that I have from you people is that I do not exploit the poor people,” he added.
Chakrabarty also criticised banks and the MFIs for “poor financial inclusion”. MFIs are “themselves responsible” for their current state. “You cannot claim that you are doing financial inclusion by charging 80 per cent interest rates,” he said.
Responding to a query on proof of address having become a hurdle for the poor to open a bank account, he said just a simple self-declaration was sufficient for the poor to open a basic account.