Public CompanyInflation not the only policy decider: RBI
Reserve Bank of India (RBI) would not just look at inflation to decide its policy, but also growth recovery, credit, and money supply expansion, K C Chakrabarty, deputy governor, said today.
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The RBI will review its monetary policy statement for 2009-10 on January 29.
“Inflation is not the only policy decider. We need to look at M3 — money supply), credit growth, and growth outlook,” Chakrabarty said in interview.
The sharp spike in inflation, driven by food prices, has led to fears of early monetary action by the RBI.
Food price inflation was 18.31 per cent in the week to December 12, while overall inflation based on wholesale price index in November was at a 10-month high of 4.78 per cent.
“Food inflation or agriculture inflation is primarily driven by supply side, but when demand superimposes, we cannot hold back our hands because ultimately, we are talking about inflationary expectations,” he said.
Chakrabarty said the economy has improved, but how much of it is driven by the fiscal stimulus needs to be analysed.
India’s gross domestic product (GDP) clocked year-on-year growth of 7.9 per cent in July-September and most government officials have indicated that 2009-10 GDP growth could be 7-8 per cent.
The RBI deputy governor said that to fund a 10 per cent GDP growth, a credit growth of 20-25 per cent would be needed.
He expects the current year’s credit growth to be 15-20 per cent.
The RBI had projected a credit growth of 18 per cent for 2009-10 in its October policy review.
“Current credit growth is enough to meet the genuine credit demand. We will be worried if it falls below 12 per cent.” he said.
He said, the exit from accommodative policy depends on the prevailing situation.
Chakrabarty said RBI deputy governors give inputs to the governor on policy, and Governor Subbarao makes the final decision.