Reserve Bank of India (RBI) governor Raghuram Rajan today waded into the inflation versus growth debate once again — and asserted that “the best way for the central bank to generate growth in the long run is for it to bring down inflation”.
The issue threatens to snowball into another major standoff between the finance ministry and the RBI over the conduct of monetary policy, especially after the finance minister has insisted that the central bank must strike a balance between the compulsions of arresting inflation and the exigency of kick-starting a faltering economy.
“The RBI is committed to getting the strongest growth possible for India – there is no difference between us and North Block on this. We believe the best way we can foster sustainable growth in the current situation… is through monetary stability — by bringing down inflation over a reasonable period of time. More specifically, we intend to bring consumer price index (CPI) inflation down to 8 per cent by January 2015 and 6 per cent by January 2016,” Rajan said while inaugurating the annual conference of the Fixed Income Money market and Derivatives Association of India and Primary Dealers Association of India.
The conduct of monetary policy has itself become a subject of debate with the Justice B.N. Srikrishna, who headed the Financial Sector Legislative Reforms Commission, coming out with a report in March last year that recommended that the Centre should set a “quantitative monitorable objective” for the central bank while setting out its monetary policy function. The FSLRC had also said that a seven–member monetary policy committee should be established and inflation need not be its sole objective. >> Read More