RBI focus shifts from growth to inflation worries
Hindustan Times, December 30, 2009, Page 23
A month before the scheduled policy review by the Reserve Bank of India (RBI), Deputy Governor Shyamala Gopinath said that the focus of the central bank is on managing the recovery and on containment of inflation rather than fostering growth.
Speaking at Bangalore Chamber of Industry & Commerce on Monday, Shyamala Gopinath said, “The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation.”
Given the dominance of food price inflation in shaping overall course of inflation, the RBI policy would be towards addressing supply constraints. “Since supply shocks take time to taper off, there is a risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation.”
When prices go beyond a level and the government cannot control it, the RBI is expected to contain it by increasing interest rates. “Containing inflation is more important than ensuring higher rate of growth. It is a good thing that the RBI has hinted at containing food inflation,” said Shirin Bagga, Economist, Boston Analytics. “Food prices need to come down, which would translate into money flowing into the economy through investments and other channels.”
The comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of only growth.
Hindustan Times, December 30, 2009, Page 23
A month before the scheduled policy review by the Reserve Bank of India (RBI), Deputy Governor Shyamala Gopinath said that the focus of the central bank is on managing the recovery and on containment of inflation rather than fostering growth.
Speaking at Bangalore Chamber of Industry & Commerce on Monday, Shyamala Gopinath said, “The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation.”
Given the dominance of food price inflation in shaping overall course of inflation, the RBI policy would be towards addressing supply constraints. “Since supply shocks take time to taper off, there is a risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation.”
When prices go beyond a level and the government cannot control it, the RBI is expected to contain it by increasing interest rates. “Containing inflation is more important than ensuring higher rate of growth. It is a good thing that the RBI has hinted at containing food inflation,” said Shirin Bagga, Economist, Boston Analytics. “Food prices need to come down, which would translate into money flowing into the economy through investments and other channels.”
The comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of only growth.
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