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RBI to take tough stance to restrain rising inflation: Raghuram Rajan

31 Oct 2013 Evaluate

Concerned over the rising inflation in the country, the Reserve Bank Governor Raghuram Rajan said that inflationary expectations are still high and the central bank will take tough stance in near future to bring it down to RBI’s comfort zone of four to five percent. WPI inflation accelerated to 7-month high of 6.46% in the month of September on y-o-y basis as against 6.10% in August mainly on the back of high food article prices.

The immediate focus of the central bank is to tame inflation as rising inflation has been eroding consumers and business confidence in the country. Recently, the RBI in its second quarter review of monetary policy has hiked repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 7.5% to 7.75% with immediate effect in order to restrain inflation. On the other hand, the government has also planned to introduce inflation-based certificate to provide some cover to households from impact of inflation.

Allaying fear over the US Fed taper, Raghuram Rajan said that India now is in a better position to face the US Federal Reserve's bond buyback programme mainly on the back of country’s comfortable current account deficit (CAD) position and its ability to raise money from external sources. India’s CAD widened to a record high of 4.9 per cent of GDP in the April-June quarter, 2013. Meanwhile, CAD is expected to come down below the government's target at 70 billion or 3.7 percent of GDP on account of number of measures taken by the RBI and the government to check country’s CAD.

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