Reserve Bank of India (RBI) Governor Duvvuri Subbarao today said that short-term growth could be sacrificed but if inflation was not curbed it could impact growth adversely. He was responding to his critics, who were of the view that policy tightening could hurt growth.
“People who apprehend that monetary tightening will hurt growth must remember that even if there is some sacrifice of output in the near-term, we are better off curbing inflation since inflation can be inimical to sustainable and equitable growth in the medium term,” Subbarao told a gathering at the Indian Institute of Science, Bangalore.
RBI has to balance between growth, price stability and financial stability but determining the priority is most important, said Subbarao.
Subbarao, who was also criticised by economists for taking ‘baby steps’ to tackle inflation, took the occasion to justify his stand by reiterating that RBI needs to take small steps.
“Given the uncertainty in the world and the lags in monetary transmission, it is not possible to offer more precise guidance. All I can say is that our guide post is festina lente – as the Romans used to say – make haste slowly.”
“There is evidence that growth is getting more broad based. Inflationary pressures too are easing because of improved supply position as also the impact of monetary tightening effected by the Reserve Bank,” he said. The yield on the 10-year government bond fell three paisa after his comments.
Analysts and market participants expect the central to raise key rates by 25 basis points in its mid-quarter policy review scheduled on September 16.
