Business | Economy
RBI chief raises the pitch for balanced growth
India's central bank must balance growth and financial stability with price stability during the global market turmoil, even though it sees inflation easing from double digits by March, its chief said.
- Reuters
- Published: 23:46 October 26, 2008
Mumbai: India's central bank must balance growth and financial stability with price stability during the global market turmoil, even though it sees inflation easing from double digits by March, its chief said.
Duvvuri Subbarao, the governor of Reserve Bank of India (RBI), said on Saturday it was still too early to assess how growth would develop in the fiscal year, beginning March 2009, as there was too much uncertainty due to the global crisis. However, any moderation in growth would be modest, he added.
The RBI left all its key policy rates unchanged at a review on Friday, after cutting its main lending rate by 1 percentage point to 8.0 per cent in a surprise move last Monday.
The decision not to ease policy again at the end of the week disappointed India's bond and stock markets, with shares falling almost 11 per cent as the global market rout pummelled them.
Concerned about rising risks to growth, central banks across the globe - including the Federal Reserve, the European Central Bank and the People's Bank of China - cut their interest rates in a coordinated move earlier this month.
India's money markets seized up early this month as the global cash crunch spread. Subbarao said last Monday's rate cut was aimed at financial stability and the RBI was trying to strike a judicious balance between its objectives.
Asked why there was reluctance to take a pro-growth monetary stance when the central bank's own projections showed inflation would slow to an annual 7 per cent by March, he replied: "Because, as I said, we have got to balance growth, financial stability and price stability."
India's most widely watched inflation measure, the wholesale price index, rose to an annual rate of 12.91 per cent in August, but eased to 11.07 per cent earlier this month.
The messages from Friday's policy review were that banks must keep credit flowing and monitor credit quality and that the central bank would act when needed, he said.
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