Stable exchange rate is important to attract investments: Subbarao--Business Line
CHENNAI, AUG. 1:
The Reserve Bank of India is willing to roll back its cash-tightening measures if the volatility in the foreign exchange market is curbed, said RBI Governor D. Subbarao on Thursday.
Delivering the R. Venkataraman Endowment Lecture at the Madras School of Economics here, he said the apex bank drew flak from different quarters for the measures it took to stem the fall of the rupee. Though this may cause some pain, it will not hurt growth. Having a stable exchange rate is important to attract investments, which in turn will spur growth, he added.
Speaking on ‘Dilemmas in central banking’, he said he did not agree with the criticism that the apex bank is obsessed with controlling inflation, regardless of the country’s economic growth.
INFLATION FOCUS
Though some say the RBI has failed in taming the inflation but managed to pull down growth, the reality is that the headline inflation, measured by the wholesale price index, came down from double-digit levels to around 5 per cent. But consumer price inflation is still ruling high, which is mainly due to certain distributional issues.
“I do not agree with the contention that RBI is obsessed with inflationary pressure. We have to keep in mind inflation, financial stability, and, at the same time, growth. We are concerned about all the three,” he said. But, in the current context, containing inflation is the prime agenda for the bank, he said.
Concerns of the voiceless poor were not heard by the media. But it is RBI’s responsibility to address them as inflation affects the poor the most. “We need to make some sacrifice of growth in the short term, while trying to bring down inflation. And, this is inevitable,” he said.
NPA LEVEL
On public sector banks having higher levels of non-performing assets compared with private banks, he said it is the result of management practices. The decision variables of public sector banks are different from those of their private sector counterparts. “The RBI is concerned about that and it has been discussed at various levels. We have put in some measures and will put in some more to control the NPA level,” he said
Duvvuri Subbarao responds to P Chidambaram, says inflation hurts poor ET 1st August 2013
CHENNAI: The Reserve Bank of India governor Duvvuri Subbarao has responded to criticism of the Indian central bank's growth-stifling approach to monetary policy, by many including finance minister P Chidambaram, saying that inflation hurts the poor more and that it was important to preserve financial stability.
Subbarao, whose five-year term ends early next month, said that a trade-off between inflation and growth is essential for sustained long-term economic prosperity, and continued price rise does not help either an individual or businesses plan for the future.
"You can't bring it down without some sacrifice in growth... Inflation is a very regressive tax. It hurts poor people more than relatively better off people. The voice of hundreds of millions of poor people is not heard through the media,"' Subbarao said at the fifth Venkatraman memorial lecture.
Chidambaram has been critical of the central bank governor for keeping interest rates high because of its impact on growth, which slowed down to a decadal low of 5% in FY13. But the governor, with price stability as his priority, has been steadfast in his approach aimed primarily at curbing inflation. That seems to be paying off slowly as the Wholesale Price Index, or WPI, which was in double digits earlier, has now fallen to just about 4%.
"All over the world, the thinking is changing," Chidambaram said recently. "The mandate of a central bank must not only be price stability. The mandate of a central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment.
I have tried to argue that while I acknowledge that the central bank's mandate is price stability, price stability must be seen as part of a larger mandate for growth and employment." Indeed, some economists say that premature easing of interest rates by the RBI, under immense lobbying, may have led to the currency's depreciation as the move stoked demand.
Subbarao, whose five-year term ends early next month, said that a trade-off between inflation and growth is essential for sustained long-term economic prosperity, and continued price rise does not help either an individual or businesses plan for the future.
"You can't bring it down without some sacrifice in growth... Inflation is a very regressive tax. It hurts poor people more than relatively better off people. The voice of hundreds of millions of poor people is not heard through the media,"' Subbarao said at the fifth Venkatraman memorial lecture.
Chidambaram has been critical of the central bank governor for keeping interest rates high because of its impact on growth, which slowed down to a decadal low of 5% in FY13. But the governor, with price stability as his priority, has been steadfast in his approach aimed primarily at curbing inflation. That seems to be paying off slowly as the Wholesale Price Index, or WPI, which was in double digits earlier, has now fallen to just about 4%.
"All over the world, the thinking is changing," Chidambaram said recently. "The mandate of a central bank must not only be price stability. The mandate of a central bank must be seen as part of larger mandate which includes price stability, growth and maximising employment.
I have tried to argue that while I acknowledge that the central bank's mandate is price stability, price stability must be seen as part of a larger mandate for growth and employment." Indeed, some economists say that premature easing of interest rates by the RBI, under immense lobbying, may have led to the currency's depreciation as the move stoked demand.
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