The Reserve Bank of India (RBI), which is accused of hurting growth by a spree of policy rate increases, on Friday said economic expansion may be slower due to the tight monetary policy in the short term, but there was no question of a long term trade-off between the two.
"There may be a short-term trade off, growth may be little slower as a result of the tight monetary policy, compared to what it would have been otherwise...but I don't think there is any question of a long-term trade off and that is what the long term picture shows—that a sustained period of high growth is typically correlated with sustained period of low inflation," said RBI Deputy Governor Subir Gokarn.
He defended the RBI's stand of aggressive rate rises, saying inflation would have spiralled out of control if left unchecked. He said the central bank had favoured controlling inflation over maintaining growth.
"Even if inflation is caused by factors like food, crude oil or other bottlenecks in the economy, it is the central bank's explicit mandate to manage inflation, and not the Planning Commission's or the agriculture ministry's," he said at an economic policy conference organised by the Confederation of Indian Industry.
RBI has raised key policy rates 11 times since March 2010—the repo rate is now eight per cent and the reverse repo is seven per cent. Food inflation stood at 9.90 per cent for the week ended July 30.
